The transcript from this week’s, MiB: Michelle Seitz, CEO of Russell Investments, is below.
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BARRY RITHOLTZ, MASTERS IN BUSINESS HOST: This week on the podcast I have an extra special guest. Michelle Seitz runs Russell Investments. She’s Chairman and Chief Executive Officer. Russell is an investing giant. They manage $330 billion or more. They do almost $3 trillion a year in annual trades. They advise on another $2$8 trillion. They’re just a giant firm. About half of the business comes from overseas, from outside of the U.S.
She is a highly regarded executive and a member of a small club of women who run giant asset management firms. We talk a little bit about that. We talk about how they’ve expanded out of beta and — and indexing into a broader range of investing. Outsourced CIO is — is a large and fast-growing business line of theirs, as well as alternative investments and how they’re expanding their platform to include that.
This is really a very much investing industry conversation. If you’re at all interested in what it’s like to run a giant company that’s in dozens and dozens of countries and have thousands and thousands of employees, you’re going to find this to be absolutely fascinating.
So, with no further ado, my conversation with Michelle Seitz of Russell Investments.
ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My extra special guest this week is Michelle Seitz. She is the Chairman and Chief Executive Officer of Russell Investments. The firm manages over $331 billion. With an additional $2.8 trillion under advisement, they trade over $2.6 trillion in equities a year. Half of their revenues comes from outside of the United States.
Michelle Seitz is a member of all the usual list, Most Powerful Women in Finance, the Power 100, Most Influential Women in U.S. Finance. I’ll stop right there but will add.
Michelle Seitz, welcome to Bloomberg.
MICHELLE SEITZ, CHAIRMAN AND CEO, RUSSELL INVESTMENTS: Barry, thank you very much for having me.
RITHOLTZ: So, let me jump to my first question. So, you spent about 21 years at William Blair. Tell us a little bit about how you got into the finance industry.
SEITZ: Sure, sure. Well, going — going back I decided early on that it was what I wanted to do. So, before I applied to colleges, I decided that I wanted to go into business, and that was the cumulative impact of several things like many people in life influenced by my parents. First, my — my father was very influential in my formative years, but especially as it revolved around business and dealing with people, he was a second-generation entrepreneur. And from the age of 12, I worked by his side after school on the weekends during summer, and he really was quite impactful in how I decided to pursue a degree in which college to go to.
On the — on the flip side, my — my mother was very influential, and I would say more from the standpoint of the impact I wanted to have and — and kind of I — I guess I would say control for financial stability. She worked very hard, but it was a long and difficult path for her. My parents divorced when I was young. And so, I just — I saw firsthand the need to leverage people’s hard work and drive them toward financial security. And so, I wanted to master money, I guess, is the best — the best way to phrase it, so I read all those “Money Master” books by — I think it was John Train, Buffett’s shareholder letters, et cetera, but I was just fascinated with the miracle of compound interest and the like.
But — but really what hooked me on investing was a high school field trip. So, I grew up in a small town in Indiana. We took a bus trip to Chicago. It was with my advanced chemistry class actually, and the main show was the Museum of Science and Industry, but we took a quick detour — fortuitously for me — at the Chicago Board of Trade, and I was hooked. I love the passion, the energy from the floor, and that’s when I decided that investing was what I wanted to do. So — so that — that set me on my trajectory early on and before I even set off for college.
RITHOLTZ: So interestingly, post-college, one of your first jobs in finance was in 1987. I’ve had a few guests who began their career the year the market took that horrific crash. Tell us about what that was like so early in your career. What do you remember from that?
SEITZ: Yeah, yeah. Well, it was, you know, baptism by fire. So, I had just graduated. I loaded up all my — my worldly goods in a U-Haul and drove down to Charlotte, North Carolina to work with what was then NCNB, which turned into Nations Bank, then Bank America. But — but it was a phenomenal culture. So, I stepped foot into the investment industry in June of 1987, so a few months before the baptism by fire.
But — but I would say the — the first leading up to that, I — I will just say what I remember the most about that year is it was a tale of all kinds of cities. The first was I thought I’d missed it, right? I mean, we had a tremendous bull market from ’82 to ’87. The Dow Jones had tripled, and I would sit there and talk with the veterans of the industry all — you know, I was younger by a factor of 10 years, anyone else managing money. But I — I really did think that I missed it, right, that, you know, this was the best we’d — we’d ever had, and you wonder how much better it could get. And then you quickly found yourself or I found myself in baptism by fire with that fateful day, which was Black Monday, October 19th when the market fell 20 percent in a single day.
And I’ll age myself with this story, but what I — what I remember most were the lines at the Quotron. Do you remember Quotron?
SEITZ: So, Quotron, you had the — you didn’t have anything at your desk, and you didn’t have 24/7 TV, so you did line up at a Quotron, which were stationed in each of the major corners of the — of the trading desk in the — in the hallways. And you punch in your ticker symbols, and I remember I was dutifully punching in my ticker symbols because even with only three months under my belt, I was managing a few hundred million dollars. And so, I was very busy focused on not losing my client’s money and how to lean in and make them money.
And behind me stood the CEO of the bank. He was quite an imposing figure within financial services, but Hugh McColl. And he was asking me all kinds of questions, and I was, you know, being very serious and answering them all without turning around and looking at who it was (inaudible) the — the questions to me. And I was — you know, I was 23 years old.
And he finally — he finally said, “Who are you and what do you do — what you do here?”
RITHOLTZ: That’s so funny.
SEITZ: The way I started — yeah, I started rattling off my resume, and he said, “What qualifies you to manage money,” which was a — which was a legitimate question, you know, three months — three months out of school. But — but anyway, I — I guess — I guess that baptism by fire and — and being — being asked the question, what does qualify you to do this, had — had me take it incredibly seriously.
I — I, number one, understood that this is — this is real money for real people who have real needs, and the emotions of people can be the greatest destroyers of wealth. And as a professional investor, that’s what you’ve got to learn to harness or eliminate from the decision-making process, but it also made it the purpose of the industry quite real to me very, very fast. So, when you’re talking with people who really are fearful of being able to retire, being able to send kids to college, the markets are in a freefall, it was — it was a very good baptism by fire.
So, I’m glad I saw what I thought was the peak. I’m glad I was — was so early in my career trajectory that I understood that this wasn’t a game. And I’m glad that I was that close to the clients rather than being disintermediated, you know, with a mutual fund where you never talked with the end clients as much. And so, it just made it — it made it very serious, it made it very real very quickly.
RITHOLTZ: And you received the firm’s rookie of the year award. Tell us about that.
SEITZ: Oh, well — well, that was fun. It was — it was — there was a big celebration on the top floor of the building. Hugh came. All of the executive team came to celebrate the top investment performers in the Investment Division. And so, I was invited to that. It was my first — it was my first year.
And I — I would say that you know, I didn’t quite understand the import of it, to be honest until several very senior portfolio managers came up and said, “You do understand how important it is to be seen here, right?” And — and I said, “Of course,” but I really — I really didn’t. But it was most important, I would say, for my street cred to be part of that, to be part of that group, and to give me credibility, especially given, you know, my disproportionate youth and, frankly, inexperience.
I mean, I — I did do well. One year does not prove scale to be quite frank, but 35 years hence. I — I think I learned a lot from that time period. And I was a student, too, of — of the — I would say of the profession, and — And so, that was very, very helpful to me in understanding how important it was to deliver on the value proposition to the clients and have it celebrated in the way that they did was — was really important. But it was a — it was a great way, frankly, the crash, and being Rookie of the Year was a — was a great way to start my career.
RITHOLTZ: So, the first — I don’t know if I should call it half, but certainly, the first part of your career, you’re on the asset management side. You eventually actually rise to the leadership of William Blair and now you serve as CEO of Russell Investments. How did managing assets and being part of a larger corporate entity help prepare you for your present leadership role?
SEITZ: That’s a really good question, especially the way you phrase it. You know, not — not many people ask me about the similarities or the leverage from being an investor to being a leader. So — so that’s a poignant question because I think — I think there are strong similarities.
You know, first of all, I would say that just what energizes me aligns to the role, both the investing role, as well as the leadership role. And so, I would say that solving — solving problems energizes me, trying to figure out what the root cause problems are, and making sure that there’s a — there’s a level of human connection that makes the work meaningful inspires me. And so, I — I think that just as a touch stone, that’s — that’s been critically important both to being able to be a lifelong learner as an investor, but also as a — as a leader in a people and knowledge worker industry.
The second — the second thing I would say is that as a — as a P.M., as an investor where I was most additive to my peer discussions, I do believe investing as a team sport and you make each other better by coming at problem-solving and deposit (ph) with investing with different perspectives.
And — and mine was that I was a very structured and strategic thinker. I could do the analyst role and the modeling role, but it didn’t excite me as much as digging into the problem that a company was solving for and how was it creating a durable sustainable franchise that it was frankly, in some large way, additive to society and filling a societal need. And so, that — that was really what I enjoyed, and it aligns very much with being a CEO as well.
And so, I — I think — I think that part was very important. I think also just being data-driven in your decision-making, but being very understanding of how important people and teams are, whether they be management teams for the companies that you’re investing in or the culture of an organization or the ability to execute on a strategic plan all have to be with a very strong people component, and a — and a desire and understanding of the import of human connection. And I think that as an investor, as well as a leader, I’ve hopefully been able to marry those two in a very — in a very real way.
RITHOLTZ: Let’s talk a little bit about Russell, which I used to associate with indexes, the Russell 2000 most famously, but that’s no longer the focus of your business. That — that particular line was sold a — a couple of years ago. Tell us a little bit about your current state of your business, who are your clients, and — and what is your key focus?
SEITZ: Sure. Well, I — I would say that the — as an investor, the most insightful questions you could ever ask a management team is — is tell me about how the firm started and how you got to where you are. So, I won’t do a whole — a whole history of Russell, but the fact that you bring up the indices is a pretty critical part of who Russell is today and — and where the competitive advantage comes from. So — so let me start there.
You know, we’re 85 years young, and Frank Russell opened the doors of our firm. And he — he did so under the umbrella of investing, you know, for people’s financial security, so we started with individuals. But his grandson George Russell really was a pioneering spirit. That’s true generally now that I live there of the Pacific Northwest.
But — but where we — where we developed the indices along the way was really at the core of what makes the firm tick, and that’s putting client problems at the center of innovation. And so, we — we did start with pension consulting. So, we — we were a pioneer in developing the pension consulting world. Then we moved on to also creating indices and manager selection was at — at the core of our consulting practice. And — but we didn’t have a good indices to measure the ability and the skill and remove factors from influencing the alpha derived from the individual manager. So that’s where the Russell indices came from. And factor investing is still core to what we offer and do. We do it in the form of direct indexing and overlays and the like, but — but that was really an important academic process, but also just core to the firm being kind of a client-centric innovative core.
The other parts of what we do: manager selection, advice, portfolio construction, assembly, risk management, implementation and execution are all now a part of what we do. But really, how I define the firm today is an investment solutions firm. That’s the — the only thing we do is provide investment solutions with end-to-end capabilities so that we are either an extension of an investment staff, whether it’s a corporate DB plan, a DC plan, sovereign wealth fund or if you’re an adviser in the wealth space were either an extension of your investment staff and capabilities or were a full outsource of your staff, which is commonly referred to as the OCIO industry or fiduciary management.
RITHOLTZ: So — so that’s really interesting. The — I think the average non-financial professional understands consulting. You know, you — you want to know more about how to do something, you hire somebody with an expertise, and they come in and we’ll work with your staff to set-up your 401(k) plan for the company or things like that. Tell us more about the OCIO role. How fast is that area growing? Who are those sorts of clients? It sounds like a very robust business line that the average person is probably less familiar with.
SEITZ: Yeah. Well, so the answer is yes, you — you are right that people are less familiar with it. I do believe that the industry is headed here quickly, so it may — it may take on different terms, but allowing — allowing us the industry to effectively personalize at scale in a very institutionally sophisticated manner is what I believe is the future of the industry.
And so, — And so, people refer to it as a product. I don’t think of it as a product. I think it’s the core of the — of the purpose of the industry and solving for client needs. And so, let me — so I’ll back up a little bit and say yes, it is one of the fastest-growing segments in the asset management industry. It’s called solutions, outcomes, goal-oriented investing. But when you choose to truly outsource the activities, if it’s not core to what you do, if you are — you know, Boeing is a client. They — they are not in the business of investing …
SEITZ: … but they do have very large pension plans, benefit plans for — to secure their employees’ retirements. And that increasingly has been an area that we’ve been helping not just smaller mid-sized companies, it used to be that it’s more the sub $10 billion in assets, plans that would outsource this activity. But even there, 70 — I think it’s over 75 percent of asset owners with assets up to $10 billion have not yet outsourced.
There’s also an incredibly large trend, which we’re benefiting from. We just won and we’ll make public a — a mandate that’s over $10 billion U.S. …
SEITZ: … in the U.K. that has decided that they would outsource their pension scheme to Russell Investments. And then BCG also, you know, tags this is one of the fastest-growing categories within the industry, even faster, frankly, than private markets, which is kind of astounding given how much private markets gets played in the press relative to OCIO and — and — and fiduciary management.
RITHOLTZ: Really, really quite interesting. So — so you mentioned factor investing earlier, and again I think of Russell is most associated with small cap as a — as a factor. Is the cheap beta story over now or is there still some juice left to be squeezed from smart beta, factor investing, what — whatever we want to call it?
SEITZ: Well, I do believe that as the industry has evolved, you know, factor investing has been very important in terms of delivering value in the form of exposures to factors whether it be through, you know, ETFs or passive mutual funds or direct investing.
And I don’t believe that’s going away. It’s been a core of how we build portfolios for big institutions, as well as for individuals. You know, 40 percent of our business is in the wealth channel where we have advisors as our clients, so we’re the number one third party — third party models provider in that channel. And so, I do believe that this will still be a sustainable and consistent part of how — of how individuals and — and businesses build portfolios.
So — so number one is it’s not over. I think it’s now just become a core part of portfolio construction, but I — I do believe I often get asked the passive versus active and demise of the active asset management industry. And I — I believe that this is a continuum.
The — the real story is a client outcome story. The real story is the need to solve for financial resilience, financial stability. The real need is about putting the clients at the center of our — of our innovation to ensure that we are delivering on the goals that are quite individually driven. And so, that — that’s what I believe the real story is rather than a cheap beta story. But I don’t believe that factor exposure, however it is you get it within a portfolio, is over by any stretch. I think that the conversation will turn more quickly with the use of technology and better hyping, which — which we can talk about.
But — but I — I do believe that technology and streamlining the delivery and access points and fractionalization of shares were — will drive access to factory exposures to become more scalable for smaller accounts. And I believe that’s a very exciting development, which will deliver more value and, more importantly, allow us to personalize at scale using both factor exposures, which is what I refer to as beta, but allows you to really finetune a portfolio for factory exposures, but also customize for individual outcomes, whether it be income or total return or ESG or values-based investing, things like that. And in that vein, active investing is still very much alive.
RITHOLTZ: Yeah, I think there’s a misunderstanding because half of ETFs and mutual funds are now indexed, but when you look at the broader asset management universe, the vast majority of management is still pretty active, isn’t it?
SEITZ: Well, it’s pretty active and, frankly, with the growth of private markets generally speaking, both — both credit and equity growing very quickly, right? And so, you’ve got this — this ground swell of entrepreneurial activity and private markets investing more generally, which I’m sure we’ll talk about.
RITHOLTZ: For sure.
SEITZ: But — but that — that growing sleeve has been very impactful and democratizing access to that, but doing so responsibly will be another imperative for the — for the industry. And — and being able to drive engagement around ESG and also make it more customized around personal — personal values necessitates active management.
And so, I — I believe it’s — it’s always been an and for me not an either-or. And it’s always been a component of the story about delivering client value, which is lowering cost and allowing more control of how to build portfolio construction alpha and allow for better execution alpha. And so, I — I — I really do believe that portfolio construction, assembly, tapping into all asset classes, and leveraging technology for personalization at scale is the story of the asset management industry, but it doesn’t make the factory exposure story go away. It just makes it a — an instrumental part of the equation.
RITHOLTZ: Really quite interesting. We’ll talk about ESG in a bit. I’m curious if you have any thoughts on direct indexing. We’ve seen Morgan Stanley, and Vanguard, and BlackRock make acquisitions to enter that space. What are your thoughts on the concept of using software to kind of modify passive indices?
SEITZ: Absolutely. We are all in. So, we do direct indexing very actively and have for quite a long time. We do it for the largest asset pools in the world, but we’ve also been able, with the use of technology — much like the acquisitions that others have made in the industry, we’ve — we’ve honed our capabilities to do that over time. Again, it came from the core of index investing in general for us, but that factor exposure investing has now been driven down into the tens of millions of dollars that we can do direct investing for.
I believe that’s also true of — of these other firms you — you talk about and what their entities or their acquisitions had been able to do. And we’re all racing very quickly again to be able to use technology, as well as the — the pipes within the industry to gather data in real-time from our clients, incorporate the data, and then — and then make it less of a two-dimensional risk return efficient frontier conversation, and very quickly make it three-dimensional.
And the reason I mention that is it goes back again to what I was saying about personalization at scale, fractionalized shares, direct investing, technology data, data gathering is all coalescing to a very, very exciting and, I would say, value enhancing contribution back to society. And that’s — and that’s allowing us to really do, you know, tax efficiency down to the individual level. Direct — direct indexing allows you to do that, but direct investing overall allows you to do that, allowing for personalization to your values and understanding how that changes your risk return profile and how to get you back on it.
So, I — I actually believe that vehicles, as we know them today, could change pretty dramatically as we head into the future. And that’s a good thing. We shouldn’t be trying to protect vehicles. We should be trying to distribute what it is we all do and can give access to so that again you can achieve personalization at scale and really drive to individual outcomes. And by definition, you know, a — a target date fund says it all. You know, 55-year-olds are exactly the same, right?
And — and we all know it’s a vast improvement over — over defaulting to cash to have plans default to target date funds.
SEITZ: But we have a long way to go to — to make it to the point that, frankly, many consumer-oriented companies have gotten to already with being able to customize the experience that you have as well as outcome. And I think that direct — direct indexing, but also just direct investing is core to that.
RITHOLTZ: Do — do you want to explain the difference between the two? Direct indexing, pretty straightforward. Instead of buying the S&P 500 spiders, you buy all 500 of those companies. And you can say, “Hey, I don’t want to own gun manufacturers or oil companies or companies that have no women on their boards.” You can tune it in just about any way imaginable. How does that contrast with direct investing versus direct indexing?
SEITZ: Well, well, indexing is indexing, right? I mean, so you’re trying to get — you’re trying to — when you index, you’re indexing to something. And typically, that’s — that’s a risk return — that’s a risk return profile and — and a factor exposure.
What — what I’m talking about is doing another layer, which means you’re optimizing for a third — a third dimension, which could be optimizing for taxes, optimizing for environment or social or government — or governance issues, but you do have to decide what it is you’re optimizing for. And you can either do it through pure indexing and factor exposure or you can lean into active which, frankly, I don’t believe that ESG investing is full captured or utilized in a positive, proactive, forward-leaning way so that you’re measuring impact rather than measuring risk exposure, so we can talk about that.
But — but you — you — you really do that best with active engagement and fundamental judgment rather than backward-looking data, which is — which is ultimately where indices don’t do the forward-looking impact role as well. So — so direct indexing would be mimicking factor returns. Direct investing, in my mind, opens up the aperture for everything, both factor exposures, as well as leaning into active and personalization at scale.
RITHOLTZ: So, I want to talk about the transformation you’ve helped to affect at Russell, but I have to start with your time at William Blair from whence you were recruited to Russell. What was that process like? How did you come to realize, “Hey, I’ve enjoyed my time at — at Blair, but Russell looks kind of interesting.”
SEITZ: Well, I would say that when I was approached about a role at Russell it happened organically and — and slowly. I had known TA Associates, which is one of the private equity firms that invests and — and sponsors Russell for quite a long time. And then like many things in life, it — it happened slowly and then all at once. And it was ultimately one of the hardest decisions that I have ever made, and I would say first because I — I enjoyed my time at William Blair immensely after 20 plus years. It becomes part of the fabric of who you are, and we — we grew together as a — as a team.
We had a five-fold increase from 2001 when I took over and — and drove it with our team — a phenomenal team who are close personal friends today, you know, to over $75 billion when I left a fivefold increase and — and took a startup institutional business that was only a few — couple of billion dollars to 28-fold increase. So, it was a — it was a tremendous — tremendous ride.
But I would say the — the difficulty and the reason it was the hardest decision for me to make is I — I have five children. Four of them were in high school, and one was in — was in elementary school when this opportunity came around. And, you know, uprooting your family after you’ve been in a — in a — in a community for 26 years is no small decision.
My husband was incredibly supportive. He views life as an adventure, and he’s very supportive of — of me and my career. He knows how much energy I get from it. But — but, you know, uprooting everyone, plus my mother and extended family was — was no small — was no small feat. But we took the caravan to Seattle, and I was ready for the — for a new challenge and it was incredibly exciting, but it was a — it was a very difficult decision to make. It’s been a great decision in retrospect, but — but I always remind myself to be comfortable with being uncomfortable. And I would say that was one of those times for sure.
RITHOLTZ: Yeah, good — good advice. So, William Blair was more of an investment bank. Russell is more of a pure asset manager. What did you learn at William Blair that translated well to Russell?
SEITZ: Well — well, two things. The first — the first is that the — the best kept secret, I guess, that’s still a best kept secret is that Blair — the asset management business did grow to be the largest business at William Blair. And so, as much as we were well-known for investment banking activities, it grew to be a powerhouse and — and still is in the asset management side. But — but you are right that while William Blair was a multiline firm, Russell is hyper-focused and only focused on one business, and that’s investment solutions. We do everything that’s required to manage portfolios, but it’s only one business.
And I did love the beauty of that. I loved the focus, the attention of the entire organization on one deliverable to different clients around the world, so the — the last mile is always localized and personalized, but — but that — that level of focus was a — is — is a luxury, not many firms have it. And so, I very much appreciated that.
But you also asked what — what did I learn from Blair that I carried to Russell, and I think there are many similarities. The — the first is that I had known Russell for a very long time. Culturally, I understood the culture quite well, the value structure, which was very similar to William Blair. And it was client-centric fiduciary at its core.
So, while William Blair was in the security selection business and Russell is in the portfolio construction, portfolio assembly, risk management business, slightly different, you still had at your core a — a value structure of nonnegotiable integrity, client-centric alignment, frankly, both at Blair, as well as at Russell so much so that growing — growing I had to convince my partners at Blair early on and also convinced Russell that growing is good. You know, growing — growing the business is good for clients. You can’t impact clients if you aren’t getting more of them, And so, growing is good. But the client-centric focus was so strong that there was a bit of a resistance and — and not as much alignment to grow because we would make more money.
That didn’t motivate either firm. It was more curating the outcome for the client and ensuring that you are protecting performance and serving those clients well. And sometimes, especially in a profession like the investment industry, delivering a service at scale versus selling a product, you know, size can be the enemy of the best outcome. And so, making sure that we do that and manage the business in a way that growth actually (inaudible) to the benefit of the clients has been a key — a key focus during the time that we grew the business at Blair, and it’s also been a key focus and the core touch stone as we’ve transformed the business at Russell.
RITHOLTZ: So, let’s talk a little bit about that transformation. You’ve described time and work hard to change the firm’s corporate culture. Tell us about what it was like to do that and why corporate culture is so important.
SEITZ: Well, the — the bottom line is that — why it’s so important is that people matter, you know, you can’t — in a people-driven business, you can’t institutionalize anything to the point that people don’t matter. And so, ultimately, any great firm is a collection of individuals that work as a high functioning team for a purpose. So, I do believe that culture is a competitive advantage. There’s no one recipe for success, but starting with a — a very clear value structure that’s aligned to the client and the health of the individuals, I — I think is you’ve won nine-tenths of the battle. So, I — I will just start by saying that Russell had that. It’s a venerable iconic firm in our industry. I’m very proud to be affiliated with it.
And what — what I — what I did less than change it, hopefully — hopefully, I’ve just enhanced it and understood what — what we absolutely — and actually, it was a question I asked when I did my tour around the world for four months and logged 500 plus thousand miles on a plane is just the listening tour is what — what do — do I absolutely need to be careful not to break and what do I need to change.
And so, it was the question that I asked clients. It was a question that I asked all of the associates around the world. We did surveys. I got feedback in any forum that I could when I first introduced myself to the firm. I put the values and the purpose of the firm up on the screen and talked about those, so I leaned in to the strengths of the firm.
But what I — what I — what I agreed with all of my associates was that we needed to align the firms’ activities around values — the things that the clients valued more than just like. So, we — we were such a client-centric from that we personalized for every single client, and you can appreciate that that ultimately undermines quality and delivery of service because you can’t customize everything, and you definitely can’t grow a durable, profitable franchise by — by individualizing every single thing without it being scalable.
And so, what — what I changed as part of the culture was making sure that everyone understood that even though we were academically and intellectually very rigorous in how we solve problems for clients, it wasn’t enough to be right with — with just an individual or client. We had to be equally effective in how we deliver that at scale and leverage the I.P. of the global capabilities for the benefit of all clients, and then customized at the last mile. And that was — that commercial instinct that — that why of why growth was good, why do we need to change our behaviors so that we can get scalable, durable, sustainable growth for the clients, as well as high quality frictionless service for them was what needed to change.
And so, that’s not a small undertaking, but culturally, it was being less independent in the delivery of — of client service and manufacturing capabilities and more about leveraging one Russell and getting global scale as an organization. And — and that was a cultural change, but one that everyone understood and bought into.
RITHOLTZ: So, let’s talk about something that didn’t change, and — and you referenced this earlier, the firm’s core purpose is to, quote, “improve people’s financial security,” unquote. Tell us a bit about that purpose.
SEITZ: Well, I think that every — every company benefits from asking the question, why do you exist? With what problem are you trying to solve for? You know, how big of a problem is it? And are you making it easy for clients to execute upon it.
And so, those are just pretty core questions, I believe, for — for any business and for — for our industry, but fortunately, for our company, we — we had a founding family that understood that 85 years ago. And so, I didn’t have to change a thing, and — and it actually was part of kind of my — my mantra as an industry leader even when I was at Blair that we needed to get back to the roots of what our industry was built for and why it existed. And — and that’s to, you know, efficiently invest people savings for ultimately their financial security, which we’re not doing a great job at as an industry, and it’s also for the effective deployment of capital. And so, that why is really important.
I can’t tell you how many times I talk about it, how I bring it to life with the individuals and the companies and, ultimately, the individuals that rely on those company benefit plans for their own financial security in their future. I — I — I talk about it all the time, and it does make its way into everything that we do. It makes its way into how we think about creating products and how we service our clients.
We don’t talk about — we don’t talk about selling products or beating benchmarks. We talk about servicing our clients and creating strategies for outcomes. And I think all of that goes back to being very grounded in why — why we exist, and what we do, and how we do it.
So, I — I — I just believe it’s — it’s core to any business. It’s core to our industry and, unfortunately, it’s been quarter to Russell since the day the Russell family opened the doors.
RITHOLTZ: Really kind of interesting. Let’s discuss your strategic partnership with Hamilton Lane. Tell us about your thoughts on private equity and alternatives and what motivated this new relationship.
SEITZ: Well, I — I think it ties — it ties in to again being agnostic about how you define adding value to the clients, right? I mean, you — you want to provide access to every asset class: capability, vehicle, passive versus active that you possibly can in order to deliver upon the promise you’re making to clients, which is to understand their objectives and — and deliver access and tailored solutions to meet that.
Private markets has — has grown in its criticality to investing, and capturing the illiquidity premium, especially when you’re trying to solve for long-dated liabilities like you are in a defined benefit plan, like individuals are with defined contribution plans, most people have much longer dated time horizons than our industry is measuring for and is geared toward. And so, the lack of exposure to private markets to date has been a missed opportunity both for institutions, as well as individuals. And this was an area of, number one, criticality of access in a responsible, but very broad manner.
Russell has been investing in private markets for decades, so it’s not as though we were new to the asset space or new to the asset class or introducing it to our clients, but we — we and I felt the sense of urgency to deliver more co-investments, secondary investments, but do so in open architecture format. And so, I — I did start down this pass, frankly, fully assuming that we would either acquire for capabilities that we felt we needed to ramp more quickly, or I would build for it.
Strategically, partnering for it is — is not the norm at least for our industry, we tend to acquire or build, but this is a very different time for our industry. And again, tying it back to the purpose, if our purpose is to deliver on financial security, the sense of urgency and that need is very, very high. And so, a strategic partnership, specifically with Hamilton Lane, fit for many, many reasons, and that is just the full power of a firm, number one, that’s been doing it for 85 years in total portfolio solutions across all asset classes paired with a firm that’s been doing only private markets for the last 30 years in an open architecture fashion. So, looking for the best of breed managers in venture, private equity, private credit, infrastructure, real estate, just across the board, real assets was incredibly important to us.
We’re not saying that Hamilton Lane is the only source of our capabilities. We still have all fiduciary power to operate with Hamilton Lane, as well as tap into other areas of expertise as we believe that we need to. But Hamilton Lane is a very powerful partner for us to offer access, as well as manager research data and most importantly, risk controls, looking across the entire total portfolio public to private market.
So, you know, just an incredibly important time in the industry. You’ve reported I think in — in past podcast, but also, I think you might have had Hamilton Lane CEO Mario on the — on the podcast as well. But it’s — it’s, you know, there are more private companies, 17,000 to be exact over $100 million in revenues relative to 2,600 in the public markets.
And so, limiting yourself to only 15 percent of the investable large company universe, if you’re only a public market investor, it just makes no sense. And so, as quickly as we can responsibly offer this and democratize access to private markets with the power of Hamilton Lane is what we want to do both for the individual wealth market, but importantly, the middle market for institutions, as well as even large markets.
RITHOLTZ: Yeah, the — the interview with Mario Giannini was October 2020, which is what made that jump off the page when I saw you guys had a strategic partnership. Let me ask you a somewhat related question about a quote of yours. I’ve interviewed a number of female CEOs over the years — Christine Hurtsellers at Voya, Jean Hynes at Wellington, Catherine Keating at BNY Mellon, Penny Pennington at Ed Jones, but you had a quote that really caught my ear, which involved the rarity and responsibility of your position. Could — could you explain what you mean by that? What — what is the rarity and responsibility of a female CEO in the financial services industry?
SEITZ: Well, I — I would say first, you know, we — we all know what’s a rarity. They’re all of the women you mentioned plus many, many more are coming through the ranks. Kate El-Hillow, I would mention as well my global CIO that I was proud to bring on board from Goldman, so I’m very — I think we’re even in more rarefied air to have a woman CEO and a woman CIO running a major investment institution, so I’m excited about that. But she was the — the best person for the job.
And I think the responsibility is to — is to give voice to authenticity and to certainly learn from every leader and person that you come across. And I’ve had the great benefit of being surrounded by mostly men, but wonderful mentors and important leaders. And my approach, I’ve felt very self-assured in, but it was very uniquely mine. And I think the responsibility is to ensure that you’re leading in a way that’s authentic to you, but I do believe that it makes it — it makes it a more inclusive conversation. It makes it more focused on outcomes and purpose. And I’m not saying that that’s a gender-specific thing, but I — but I do believe that operating in a manner that takes into account the responsibility of the seed is incredibly important because people are watching.
And whether your ethnicity is different or your gender is different, you know, when you’re — when you’re at the table, you — you’re required to speak and you’re required to bring the diversity of thought, the diversity of view, and — and — and make sure that your — that your voice flows with the magnitude that it should have to represent your thoughts, you know, again, constructively, appropriately, collaboratively. But I just — I actually said somewhere along the way that I’ve — I’ve sometimes — frankly even most of the times, I didn’t notice that I was the only along the way because it was more about solving the problem than it was about individuals at the table. So, the — the — the group intellect took over more than — more than me feeling like the spotlight was on me as the only — unfortunately, I’m no longer and only, and I …
SEITZ: … I think that’s just going to continue to change at — at warp speed so.
RITHOLTZ: Yeah, historically, finance has been wildly under representative of both women and people of color, and it’s been a long slow transition, but it’s pretty clear that it’s been changing. It’s still behind where it should be, but there can be little doubt that it is so much better than it was when I started my career 25 or so years ago.
You know, we alluded to ESG investing earlier. Let’s — let’s talk a little bit about it. There’s been some criticism about how subjective the screens are. Some end up just looking like plain vanilla indexes. What do you say to this criticism about the state of environmental, social, and governance investing?
SEITZ: Well, it’s burgeoning. There is no question that this — this is not slowing down in its momentum or its import. And again, I believe that this one, like many others, is a very complex topic that we’ve tried too hard to simplify into messages and products, but I do believe it’s only the beginning. So, I’ll start there.
Your — your question was more about indices and the fact that there’s been a spotlight on the understanding of what these various indices or managers for that matter have actually been — been doing. And I think that’s — that — that is a responsibility of the industry, to more effectively communicate both the complexity and the transparency of what the indexes do and what they — what they don’t do. So, let — let me start with that.
First — first, any index gives you a starting point, but the whole topic, I mean, we’re — we’re talking about ESG as if it were one thing, it’s — it’s clearly three very nuanced and complex desires or impact that one wants to have and not everyone cares equally about the E or the S or the G. Typically, there’s more of a focus for investors on some component where they want their money to have an impact upon society or they definitely don’t want to be exposed to the risk.
And so, I would say that while indexes give you a starting point, you do need to get to the core of what investors are trying to solve for. And so, I — I believe that that, number one, is difficult to find out. Number two, it’s difficult to define, and it’s also difficult to measure, and it’s difficult to predict.
So, we — we — we have complexity. We have demand and we have enormous need. And so, the — the drum beat for the industry, and we all take it very seriously is very high to make advancements in ESG investing and personalizing to those values at scale in a manner that goes beyond managing the investment risk, which is where I think these indices get a — get a bad rap. And the reason I say it that way is that, you know, they are reliant upon data that’s disclosed by companies, which isn’t always disclosed or there isn’t clarity of the metrics they should be disclosing or the materiality of those things, so that’s — that’s fast changing.
And I — I know that Chairman Gensler is — is very focused on that. We should have something coming out with more guidelines in the near future that will be helpful.
The — the second main thing with indices is they’re backward-looking, and that’s a problem with the data, right? So, we do have a data problem. Capturing the data from companies, how do we define it, how do we measure it, how do we define materiality, then you have the complexity of, you know, is it — is it Scope 1, you know, Scope 2 or Scope 3? You know, is — it is it the company’s own carbon footprint? Is it how Scope 2 — it makes its way into the distribution or the clients, and then Scope 3 is suppliers.
And so, this is — this is just a — it’s a fast changing, critical and clearly societal demand that I would say the desires are outstripping the capabilities at the moment, and you got to go back to how do we all make it better, and how are we clear in our messaging about what our current tools enable us to do versus not. And I’ll pause there, but I’d love to talk a little bit more about what we’re doing specifically in that area.
RITHOLTZ: So — so let’s get into that because I think that’s — that’s really important. How can you make investments that are reflective of your values and yet move the needle while still maintaining decent returns?
SEITZ: Well, this — this all goes back to what I said at the beginning, which is Russell is dominant where the puck is headed. It’s part of the reason I chose and was very excited to come on board to lead Russell because I do believe we’re at the tip of the spear for change within the industry. And — and that is in the area of ESG bringing to bear our enormous capabilities to focus on the total portfolio across all asset classes agnostic to whether you passively or actively invest, but know where active investing can lead to the desired outcomes and be worth the price that you pay for the active investing. And that is no truer than in ESG. And so, this is where active engagement, active data capture.
I’m not — I’m not just avoiding risks or excluding companies because of their industry classification, but actively leaning into judgment and fundamental analysis and allowing engagement, i.e., your investing dollars to influence how companies think about their allocation of resources and their management to net zero or whatever the goals might be. Maybe it’s diversity on their board. Whatever — whatever goals are important to you as an — as an investor and you want to move beyond climate risk, social risk or governance risk being an investment risk, and move toward investing with your values and wanting to make more of a sustainable positive impact on the planet, on society. Whatever the issues may be, you absolutely have to lean into active management because that’s the level of engagement that allows you to use your voice and your dollars to discuss with companies how they will change or manage their companies to align to those goals or not.
And that — and that again comes down to how you are choosing to build a portfolio to that third dimension and, in this case, with an ESG investor where this is one of their highest desires, which is what we find with trustee boards and big institutional investors, specifically in Europe and in Australia, and other areas around the country, but coming quickly to the U.S. is their — their bar for reporting back to their board on progress that they’re making on net zero portfolio commitments and the like, not just at Scope 1, but Scope 2 and Scope 3 is absolutely necessary.
And — and we’ve teamed with people like Planetrics and other data providers to really give us that forward-leaning level of data. And you can only make use of that and best use of that through active investing and active engagement.
RITHOLTZ: Really interesting stuff. One of the things you said previously I thought was very interesting, which is about half of people being born now this — this decade might live to 100 or longer. What does that mean for the economy? What does it mean for our health care system? And — and what does it mean for markets?
SEITZ: Oh, my goodness. We could talk about this one for a long time, but I — I loved the quote that demographics is the future that already happened. It — borrowing, you know, outbreaks like the pandemic, we — we — we do know that this — this is our — this is our world. And, you know, on the — on the healthcare front I do sit on a corporate board, Sana Biotechnology. It’s a fascinating — fascinating field to talk about lifespans, but we importantly need to talk about the infrastructure around the world to deal with this aging demographic.
And that comes in lots of different forms, but — but I’ll focus it on the work we do, which is I — I envision that, you know, with increasing life spans, you certainly want equally good health spans, which — which is very dependent upon science and much of the work that’s being done with — with biotech and vaccinations, and helping us live better lives for longer. But it also ties into what we do, which is I think about as wealth spans and ensuring that we could afford to live to be 120, right? And that may not happen for me, but I’m pretty convinced that it’ll happen for my kids and that generation.
And so, from — from that perspective, you know, it goes back to purpose, but — but I’ve talked about this a lot, and you may have seen it in some of your work. But, you know, it — it was a couple of years ago that the — that the Davos reported on this that there was a $70 trillion existing gap in what people need at retirement versus what they have and growing quickly just because of demographics and math to $400 trillion by 2050.
SEITZ: Now those numbers are so big. I see that people just like their eyes gloss over, And so, I always try to make things relative to make it — to make it relative to something and put it in context that that — that annual gap is equal to 150 percent of the developed world’s GDP. So, it’s a huge number that we cannot afford to ignore, and we also cannot if afford to ignore that we — our retirement infrastructure was — was set-up in the late 1800’s and then reaffirmed during the — the depression when most people didn’t live past 65.
RITHOLTZ: Right, right.
SEITZ: So, it was never — we’ve never funded as a society, nor did we ever intend for people not to be productive — productive citizens for nearly 40 percent of their lives. I mean, we — we just — we just can’t — can’t do that, and we also need to have infrastructures that — that can accommodate that. So, it — it’s a — it’s a — it’s a big question. It’s deserving of solving, which is why I talk so much about outcomes.
I — I do believe in financial literacy. It’s part of why this became a very personal endeavor for me is making sure that people understood the power of compound interest. They understood the power of leveraging their hardworking activities to provide for their financial security that went for my family, but also a lot of other people that I’ve counseled over my 35-year career. But — but you can’t educate someone out of a crisis.
And I would say for our aging boomer generation, it — it absolutely is a crisis that will pay for as a society because it’s the only way we can pay for it. But it’s the next generation and the generation after that that we need to interrupt the pattern, and that’s why I feel so strongly about making innovation within the industry centered around client needs because as quickly as we can help people understand in real-time what they have, what they need, how long they need to work, and define what their goals are, the quicker we can put them on a path to financial resilience and enable them to be empowered with data so that they can make better choices for themselves.
RITHOLTZ: So …
SEITZ: And we have not done that well as an industry. And I’m very excited for all the things we’ve been talking about in terms of manufacturing and access, but I’m even more excited about having an interface with the clients that allows them to — to not be educated in a finance degree or an investment degree or go get a CFA in order to figure out the complexity that we’ve made of this system while still not solving the root cause problem financial security for people around the world.
RITHOLTZ: Really intriguing. So — so let’s take that concept of the gap in retirement savings and talk a little bit about the lowered expected returns we see in the public markets. What are your thoughts on other alternatives? We briefly touched on private equity. What are your thoughts on — on P.E., on venture capital, and hedge funds as a way to offset possibly lower returns from stocks and bonds?
SEITZ: Absolutely critical. We should — we should allow and avail our clients of responsible access within their parameters and goals, responsible access to as many forms of — of investing as possible, and certainly the advancements that are being made in the — you know, I don’t want the conversation to go off in these areas, but the — the advancements that are being made with access to potentially different asset classes that may grow over time through digitization, through blockchain, peer-to-peer investing, I think, are very exciting. And while they’re highly speculative and pockets at the moment, I do believe that that also is a course of technological change that will influence positively access to lots of different vehicles and asset classes that haven’t existed today.
But the here and now is very real in alternatives. I really don’t even like that term because it’s such a — it’s such a big category that gets lumped into one bucket, and the individual asset classes underneath the “alternatives,” quote-unquote, couldn’t be more different. But the — the other reason I don’t like it is we’ve traditionally talked about portfolio construction as a 60-40, you know, balanced mix of, you know, stocks and bonds, and then we bolt on alternatives. And that’s just not how we construct portfolios today, and it’s not how any portfolio for an individual should be constructed, so it should happen to everything that you mentioned. As appropriate, we use hedge funds, venture, real assets, real estate, private credit, private — private equity, so all forms: co-investment, secondaries have to be managed very purposefully, but with a risk control and an understanding of how those various parts of the portfolio actually work together.
So, for instance, you don’t want to spend all of that money and alpha exposure to a private equity manager say it’s a growth equity manager, for instance, and not know how it relates to your public markets or your factor exposures or your indexing exposures. And most risk systems have not incorporated a total portfolio view so that you understand those exposures down to the individual level. What we’ve done instead is just put a risk — a liquidity — or illiquidity risk premium on many of these other asset classes and alternatives. And that’s — that’s just a very blunt tool that we’ve outgrown.
And so, all of our efforts, again, powered with the partnership with Hamilton Lane, but why I felt the sense of urgency to do it, this will be a critical area to tap into in order to solve for the societal financial resilience or financial security need and not availing yourself in a responsible way so that all investors can gain access either through their employer plans even if it’s a small or midsize employer or eventually we’re not there yet, but eventually tap into it through the wealth channel.
We’ve given people access. We haven’t, in my opinion, yet given them all of the tools to ensure that they have responsible access, and they understand how alternatives, broadly speaking, exposure is interrelating with the other investments that they’ve already made in their portfolios.
RITHOLTZ: Really intriguing. And as long as we’re talking about the state of investing today, what are your thoughts on things like DeFi and crypto? Do they have a place in investors’ portfolios or is this still too new and speculative?
SEITZ: Two-fold answer. The first is when we talk about crypto, there clearly are speculative bubbles. And I think, unfortunately, the conversation whether it be around Dogecoin or bitcoin distracts from the innovation that truly is occurring within the technology, and the platforms, and the concept of peer-to-peer networks. So, I think you’ve had several guests on over time, and — and — and lots of discussion taking place in the industry. I believe it’s real. I believe it will be incredibly disruptive to the ecosystem, but I believe that it will be very additive in, ultimately, the core of innovation efforts as we move forward.
However, like any burgeoning field and again — again, I age myself back in the eyeball days of 1999 where every company was launching. It was highly speculative. Everyone thought that bricks and mortar businesses were going to go out of business, and it just wasn’t — it wasn’t true. It was that every company needed to figure out how to incorporate the Internet.
There weren’t necessarily standalone Internet companies that truly turned the world upside down. There — there were a few, but they blended both the traditional business models with the new business models. And I do believe that that will be the outcome, and it will be a good outcome of the advancements that are being made with technology at its core for the finance in investment industry. But I believe it’s a — it’s a — a higher level impact than simply distilling it down to crypto currencies.
But I — but I do believe that there are — there places for lots of innovation within the industry. We haven’t incorporated crypto into our strategic asset allocation for our — for — for our DB plans. We still deem it to be early innings, but clearly, there will be a lot of winners and a lot of carnage along the way. And I would just differentiate speculation from responsible innovation within the industry. And I think both are recurring right now in that segment.
RITHOLTZ: So, I know I only have you for a limited amount of time. Let me jump to my favorite questions that I ask all of our guests starting with, especially these days since we’re — it looks like we’re going back into a more defensive crouch with COVID, tell us what you’re streaming these days. What — what’s keeping you entertained at home.
SEITZ: Well, several things. We’re a big podcast family, but — but since you mentioned longevity and healthspans, Peter Attia, the Drive is one that I listen to with regularity.
The other one is Sam Harris. He has a couple of different apps. One is making sense, but the one I listen to with equal regularity is Waking Up, which is a meditation philosophy app, which I find very interesting. And since it’s top of mind, I’ll give you the guilty pleasure one while I was wrapping gifts last night for my — for my — for my kids and my family, I was watching the latest episode of Succession.
RITHOLTZ: I’m a season behind it, and I — I don’t think I’ve ever seen the show where there isn’t a single character you actually like. Everybody is just such a contemptible human being.
SEITZ: Exactly, exactly.
RITHOLTZ: Let’s talk about — let’s talk about mentors. Who helped shape your career?
A: Well, you know, for most people and for me as well, it — it starts with — with my family. My father was — was an instrumental figure in my life. I lost him six years ago, but he was my — my best friend, my confidante in — in my career, in my life. But also, my mother, early mentor and hard work, and the human aspect of approaching — approaching business.
But — but I would say early mentors from just a pure career standpoint, I had many — I learn from everybody. I feel like I still have mentors. I know you’re asking about early, but I — I really — it’s equal opportunity when I think about mentors.
I — I would say probably one of the most pivotal ones that you think up in a traditional sense though would be Konrad Fischer, who is one of the greatest investors that, frankly, the world doesn’t know, but he is phenomenal and was my predecessor as — as head of William Blair Investment Management and very responsible for — for many of the things I went on to grow from and impact while I was at Blair, but continues on to this day. So — but I would say I find mentors everywhere, below me, next to me. I look — I am able to learn from everyone, and I seek to learn from everyone.
RITHOLTZ: Really interesting. Let — let’s talk about books. What are some of your favorites and what are you reading right now?
SEITZ: Reading right now is “The Code Breaker,” Jennifer Doudna on gene editing. So that puts a little bit with my board director role with Sana Biotech.
And then favorites, I would say, you know, favorites I defined as a dog year, and it drives my husband crazy. I highlight them, I dog ear them, and I actually end up buying the second one, so I don’t ruin it. But I would say “Sapiens.”
SEITZ: I’ve always come back to “Factfulness,” Hans Rosling, is a wonderful book. And — and I referenced that a lot. And then anything that Dani Kahneman writes or talks about, I love. So those are some of the favorites.
RITHOLTZ: That’s a great list. Let’s talk about advice to a college grad who might be interested in a career in investment management or finance.
SEITZ: I would still say go for it. You know, just like I felt when I came in in 1987 that the best had already passed me by and I missed the, you know, three-fold increase in the Dow Jones industrial average, you know, the end was near, it — it never is. And I do believe that investing in finance is core to capitalism. I believe it’s core to a growing economy, and I believe it’s core to solving societal needs. So, it’s not going away.
I would encourage anyone coming into the field to drive change, ask better questions, and solve for really big problems in a way that people can live better lives because of your efforts.
RITHOLTZ: Really quite intriguing. And our final question, what do you know about the world of investing today you wish you knew 35 years or so ago when you were first getting started?
SEITZ: I would say I might be repeating myself, but — but I — I — I really wish that I understood 30 years ago how critical it was that we solve for the right problems, the biggest problems, and — and make it scalable so clients could actually execute it. And so, I derived a great deal of personal satisfaction sitting across from kitchen tables and making a difference in individual people’s lives. I didn’t understand how urgent that need really was again at scale, like that the — the high net worth business was always considered a practitioner business, and it wasn’t scalable. Wealth management wasn’t as attractive as institutional management because it wasn’t scalable. And now, all of the innovation that we’re seeing today is exactly that.
So, I wish all of us had understood 30 years ago how critical that need was going to be with an aging demographic and how fast the clock was ticking. I — I wish we would have done things differently versus, you know, begin so concentrated on putting all of our R&D dollars into beating benchmarks, which — which helped some people, but it didn’t help as quickly as it needed to.
RITHOLTZ: Quite, quite interesting. Thank you, Michelle, for being so generous with your time.
We have been speaking with Michelle Seitz. She is the Chairman and CEO of Russell Investments.
If you enjoy this conversation, well, check out any of the previous 400 or so we’ve done over the past eight years. You can find those at iTunes, Spotify, wherever you find your favorite podcasts.
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I would be remiss if I did not thank the team that helps put this conversation together each and every week. Mohamad Rimawi is my Audio Engineer. Paris Wald is my Producer. Atika Valbrun is our Project Manager. Michael Batnick is our outgoing research director.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.