Michelle Seitz on Alternative Investments (Podcast)

from outside of the US. 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 c I o 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. UH. This is really a very much investing industry conversation if you're at all interested in what it's like to run a giant UH company that's in dozens and dozens of countries and have thousands and thousands of employees. You're gonna find this to be absolutely fascinating. So, with no further ado, my conversation with Michelle Sites of Russell Investments. This is mesters in Business with very Renaults on Bluebird Radio. My

extra special guests this week is Michelle Sites. She is the chairman and chief executive officer of Russell Investments. The firm manages over three d thirty one billion dollars, with an additional two point eight trillion under advisement. They trade over two point six trillion dollars in equities a year. Half of their revenues comes from outside of the United States. Michelle Sites is a member of all the usual lists Most Powerful Women in Finance, the Power one hundred, Most

Influential Women in US Finance. I'll stop right there, but we'll add Michelle Sites. Welcome to Bloomberg Berry. Thank you very much for having me. So let me jump to my first question. So you spent about twenty one years at William Blair. Tell us a little bit about how you got into the finance industry. Sure, sure, Um, well, going going back, Um, 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. UM. 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 twelve I worked by his side after school on the weekends during summer, and he really was quite impactful, and how I decided to pursue a degree in which

college to go to UM. 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 guess I would say control UM 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 UM the need UH 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, buffet, shareholder letters, um 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. Um 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 when I decided that investing was what I wanted to do, so um so that that set me on my trajectory early on,

and before I even set off for college. So interestingly, post college, one of your first jobs in finance was in 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. Uh so early in your career. What do you remember from that? Yeah, well, it was you know, baptism by fire. So I had just graduated.

Um 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 MCNB, which turned into Nation's Bank and Bank America. Um but um, but it was a phenomenal culture. So I stepped foot into the investment industry in June of so a few months before the Baptism by Fire. Um. But but I would say the first leading up to that, I will just say what I remember the most about that year, as it was a tale of all kinds of uh cities. Um.

The first was I thought I'd missed it, right. I mean, we had a tremendous bowl market from eight two to eighty seven. The del 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 ten years anyone else managing money. Um. But I really did think that I missed it. 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 uh in Baptism by Fire Um with that faithful day which was Black Monday, October nineteenth, when the market fell 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? So quotrons you had to you didn't have anything at your desk, and you didn't have

twenty four or seven TV. So you did line up at a quotron UM, which were stationed in each of the major corners of the of the trading desk and 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 UM a few hundred million dollars UM 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 UM. He was quite an imposing figure within financial services, but Hugh McCall, and he was asking me all kinds of questions, and I was, you know, being very serious and uh answering them all without turning around and looking at who was posing the question the questions to me. And I was, you know, I was twenty three years old, and UM he Finally, he finally said, who are you

and what do you do? What do you do here? Started? Yeah, I started rattling off my resume and he said, 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. Um. But but anyway, I guess, I guess that baptism by fire and uh and being being asked the question what does qualify you to do? This

had had me take it incredibly seriously. UM. I number one understood that this is this is real money for real people who have real needs, and the emotions of people, UM can be the greatest destroyers of wealth. And as a professional investor, that's what you've got to learn to um harness or eliminate from the decision making process. UM. 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 free fall. It was it was a very good baptism by fire. UM. 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 under stood that this wasn't a game, UM, 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 UM as much, and so it just made it. It made it very serious. It made it very real, very quickly, and you received the firm's Rookie of the Year award. Tell us about that,

Oh well, UM, well that was fun. It was. It was. There was a big celebration on the top floor of the building. Hugh came, UM, all of the executive team came to celebrate the top investment performers in the investment

division and so UM I was invited to that. It was my first it was my first year UM, and I would say that, you know, I didn't I 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 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 UM, to be part of that group and to give me credibility, especially given you know my um, disproportionate youth, uh and frankly inexperience. I mean I did do well. One year does not prove skill, to be quite frank but um, thirty five years. Hence I think I learned a lot from that time period. Um. And I was a student too of of the I would say, of the profession, and so that was very

very helpful to me. And 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 it was a great way. Frankly, the crash and being Rookie of the Year was a was a great way to start my career. 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 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 helped prepare you for your present leadership role. That's a really good question, especially the way you phrase it, um, you know, not not many people ask me about the similar charities or the leverage from

being an investor to being a leader. UM. So so that's a poignant question because I think I think there are strong similarities. UM. 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 UH problems are and making sure that there's a there's a level of human connection that makes the work meaningful. UM. It

inspires me. And so I think that just as a touchstone, UM, that's that's been critically important both to being able to be a lifelong learner as an investor, um, but also as a as a leader in a people and knowledge worker industry. UM. The second, the second thing I would say is that as a as a PM as an investor,

where I was most additive two my peer discussions. I do believe investing as a team sport and UM, you make each other better by coming at problem solving and the puzzle of investing with different perspectives and and mine was um that I was a very structured and strategic thinker.

UM 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 durab both sustainable franchise that 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 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 UM or the culture of an organization, or the ability to execute on a strategic plan, all has to be with a very strong people component and the desire and 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. Let's talk a little bit about Russell, which I used to associate with indexes the Russell two thousand, most famously, but that's no longer the focus of your business. That that particular line was sold a couple of years ago. Tell us a little bit about your current state of

your business, who your clients, and what is your key focus? Sure, um, well, 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 indicase is a pretty critical part of who Russell is today and and where the um competitive advantage comes from. So so let me start there.

You know, we're eighty five years young, um, and Frank Russell opened the doors of our firm. Uh. And he did so, um under the umbrella of investing, you know, for people's financial security. So he started with individuals. But his grandson, George Russell, really was a pioneering spirit. That's

true generally now that I lived there of the Pacific northwest. Um. But but where we where we developed, uh, 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. Uh, then we moved on to also creating indices and manager selection was it at

the core of our consulting practice. And but we didn't have good indicase to measure the ability and the skill and remove factors from the influencing UM the alpha derived from the individual managers. So that's where the Russell indicase 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 UM kind of a client

centric innovative core. UM. The other parts of what we do manager selection, advice, UM, portfolio construction, assembly, risk management, implementation and execution are all now UM a part of what we do. But really how I define the firm

today is an investment solutions firm. That's 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 advisor in the wealth space, we're either an extension of your investment staff and capabilities, or we're a full outsource of your staff, which is commonly referred to as the O c i O industry

or fiduciary management. So that's really interesting. The I think the average non financial professional understands UM consulting. You you want to know more about how to do something, you hire somebody with an expertise and they come in and will work with your staff to set up your four oh one K plan for the company or things like that. Tell us more about the O c i O 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. Yeah, well, um, so uh the answer is yes, you you are right that people are less familiar with it. I do believe that, um, 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 UM 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 as a client, Uh, they are not in the business of investing, but they do have very large UM pension plans BENEF that plans for to secure their employees retirements UM and that increasingly has been an area that we've been helping, not just smaller midsize companies. It used to be that it's more the sub ten billion dollars in assets UM plans that

would outsource this activity UM. But even there UM seventy I think it's over seventy of asset owners with assets up to ten billion have not yet outsourced UM. There's also an incredibly large trend which we're benefiting from. Uh we just one and will make public a mandate that's over ten billion US in the UK that has decided that they would outsource their pension scheme to Russell Investments

UM and then BCG also you know tags. This is one of the fastest growing UM categories within the industry, even faster frankly than private markets, which is kind of astounding given how much private markets UM gets played in the press relative to O C I, O and and and fiduciary management. Really really quite interesting. So you mentioned factor investing earlier UM 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 uh smart beta factor investing, whatever we want to call it. Well, I do believe that as the industry has evolved UM, you know, factor investing has been UM very important in terms of delivering value in the form of exposures two factors, whether it be through you know e t s or passive mutual funds or direct investing. And I don't believe

that's going away. UM, It's been a core of how we build portfolios for big institutions as well as for individuals. 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 UM in business his build portfolio. So so Number one is it's not over. I think it's now just become

a core part of portfolio construction. But I do believe I often get asked the passive versus active and the demise of the active asset management industry, and 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. UM. 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 data 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 do believe that technology and streamlining the delivery and access points and fractionalization of shares word will drive access to factor exposures to become more scalable, uh 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 data but allows you to

really fine tune a portfolio for factor expos posures, but also customize for individual outcomes, whether it be income or total return or e S g UM or values based investing, things like that. And in that vein active investing is still very much alive. Yeah, I think there's a misunderstanding because half of e t fs 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. Well, it is pretty active, and frankly with the growth of private markets generally speaking, UM, both both credit and equity growing very quickly, right, and so you've got this this ground swell of entrepreneurial activity and private mark it's investing more generally, which I'm sure we'll talk about, but but that that growing sleeve UM 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 UM around d s G and also make it more customer customized around personal personal values UH necessitates UM active management. And so I believe it's it's always been an end 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 really do believe that portfolio construction assembly, tapping into all asset classes and leveraging technology for personalization at scale is the story UM of the asset management industry. But it doesn't make the factor exposure story go away. It just makes it an an instrumental part of the equation. Huh. Really quite interesting. We'll talk about E s G in a bit. I'm curious if you have any thoughts on

direct indexing. We've seen Morgan Stanley and Van Gord and black Rock make acquisitions to enter that space. What are your thoughts on the concept of using software to kind of modify passive indices. 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 UH the acquisition 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 UH index investing in general for us UM, 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 they're entities or their act acquisitions have been able to do. And we're all racing very quickly UM

again to be able to use technology as well. Is the pipes within the industry to gather data in real time from our clients, incorporate the data UM and then UM and then make it less of a two UM dimensional risk return efficient frontier conversation and very quickly make

it three dimensional. And the reason I mentioned that is it goes back again to what I was saying about personalization at scale, fractionalized shares, direct investing, technology, UH, data UM, data gathering is all coalescing to a very very exciting and I would say value enhancing UH contribution back to society. And that's and that's allowing us to really do you know,

tax efficiency down to the individual level. UH. Direct investment, direct indexing allow you to do that UM, but direct investing overall allows you to do that UM, 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 actually believe that vehicles as we know them today UM could change pretty dramatically as we head into the future UM, and that's a good thing. We shouldn't

be trying to protect protect vehicles. We should be trying to distribute what it is we all do and can give access to, so that again, UM, you can achieve personalization at scale and really drive to individual outcomes. And by definition, you know, a target date fund says that all you know, fifty five year olds are exactly the same, right, And we all know it's a vast improvement over over defaulting to cash to have plans to fault to target

date funds. But we have a long way to go, uh to to make it to the point that frankly, many UH 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 indexing, direct indexing, but also just direct investing is core to that. Do you want to explain the difference between the two direct

indexing pretty straightforward? Instead of buying the S and P five hundred spiders, you buy all five hundred of those companies, and you can say, hey, I don't want to own gun manufacturers or royal 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? Uh? Well, well, indexing is indexing, right, I mean, so you're trying to get your trying to when you index your indexing to something UM and typically UH, that's that's a risk return, that's a risk return profile and UM and a factor exposure. What what I'm talking about is doing another layer, which means you're optimizing for a third um, 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 act of which frankly, I don't believe that E s G investing is fully 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 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. So I want to talk about the transformation you've helped to affect it 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, uh, I've enjoyed my time at Blair, but Russell looks kind of interesting. Well, UM, I would say that when I was approached about a role at Russell UM, it happened

organically and slowly. I had known uh Tier Associates, which is one of the private equity firms that UM invests UH and and sponsors Russell UM for quite a long time UM. And then, like many things in life, it uh, it happened slowly and then all at once, And it was ultimately one of the hardest decisions that I've ever made. And I would say first because I enjoyed my time at William Blair immensely. After twenty plus years, it becomes part of the fabric of who you are. And we

we grew together UM as a as a team. We had a fivefold increase from two thousand and one when I took over and drove it with our team, a phenomenal team who were close personal friends. Today. UM, you know, to over seventy five billion when I left a fivefold increase and and took a start up institutional business that was only a few couple of billion dollars to eight fold increase. So it was a it was a tremendous,

tremendous ride. UM. But I would say the difficulty and the reason it was the hardest decision for me to make is I have five children, UM. Four of them were in high school and one was in UM was in elementary school when this opportunity came around. And you know, uprooting your family after you've been in a in a community for twenty six years, UH is no small decision.

My husband was incredibly supportive. H he views life as an adventure, and he's very supportive of of me uh in my career, and 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. 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 UM? Well, well,

two things. The first. The first is that the best kept secret I guess that's still a best kept secret is that Blair UM the asset management business did grow to be the largest UM business at William Blair UM, and so UM as much as we were well known for our investment banking activities, UM it grew to be a powerhouse and and still is UH in the asset management side UM. But but you are right that UM.

While William Blair was a multi line firm, Russell is hyper focused and only focused on one business, and that's investment solutions. We do everything that's required to manage UM portfolios, but it's only one business. And I did love the beauty of that. I loved the focus, UH, the attention of UH the entire organization on one deliverable UH two different clients around the world. So the last mile is always localized and personalized. But but that that that level

of focus was is a luxury. Not many firms have it, and so I very much appreciated that. But you also, what what did I learn from Blair that I carried to Russell? And I think there are many similarities that The first is that I had known Russell for a very long time. Culturally I understood stood the culture quite well. The value structure which was very similar to William Blair UM, and it was client centric UH fiduciary UM 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, UM, you still had at your core a value structure of non negotiable integrity UH client centric alignment. Frankly, both at Blair as well at Russell, so much so that growing UM 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 UM, 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. Um. That didn't motivate either firm. It was more uh curating um, the outcome for the client and ensuring that you were 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. UM. You know, size can be the enemy of the best outcome, and so making sure that we do that uh and manage the business in a way that growth actually a nurse 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 uh and the core touchstone as we've transformed the

business at Russell. Huh. So let's talk a little bit about that transformation. You've described having to 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. Well, UM, the bottom line is that why

it's so important is that people matter. You can't in a people driven business, you can't instatutionalize anything to the point that people don't matter, and so UM, 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 very clear value structure that's aligned to the client and the health of the individuals, I think is you've won nine tenths of the battle. So I will just start by saying that Russell had that, UM, it's a venerable, iconic firm in our industry. UM, 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 five hundred 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

a 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 UM 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 need did too align the firms activities around values that things that the clients valued

more than just liked. So we were such a client centric firm that we personalized for every single client. And you can appreciate that that UM ultimately undermines quality and delivery of service because you can't customize everything and you definitely can't grow a durable, profitable franchise by UM 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 client. We had to be equally effective and how we delivered that at scale and leverage the i P of the global capabilities for the benefit of all clients and then customized UM at the last mile. And that was that commercial instinct that UM 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, frictionalist 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 UM 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 brought into So let's talk about something that didn't change. And you reference this earlier. The firm's core purposes to quote improve people's financial security unquote. Tell us a bit

about that purpose. 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 history. But fortunately for our company, we we had a founding family that understood that years ago, and so I didn't have to

change a thing. 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 too, you know, efficiently invest um people's savings for ultimately their financial security, which we're not doing a great job at as an industry. Uh. 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, the companies, and ultimately the individuals that rely on those company benefit plans for their own financial security and their future. 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 um our clients. UM We don't talk about um we

don't talk about selling products or beating benchmarks. We talk about servicing um our clients and creating strategies for outcomes. And I think all of that goes back to being very grounded and why why we exist and what we do and how we do it. So I just believe it's it's core to any business, it's core to our industry. Unfortunately, it's been core to Russell since the day the Russell family opened the doors. Really kind of interesting. Let's discuss

your strategic partnership with Hamilton's Lane. Tell us about your thoughts on private equity and alternatives and what motivated uh

this new relationship. Well, I think it ties. It ties into UM 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 UM passive versus active that you possibly can in order to deliver upon the promise you're making the clients, which is to understand their objectives and and deliver access and tailored

solutions to meet that. UM. 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 UM a missed opportunity, both for institutions as well as individuals, and this was an area of UH number one criticality of access in a responsible but very broad manner. UM Russell has been

investing in private markets for decades. So it's not as though we were new to the assets space or new or 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 an open architecture format. And so I did start down this path 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 not the norm, at least for our industry. We tend to acquire or build UM, 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 UM, the sense of urgency and that NED is very very high UM, and so a strategic partnership specifically with Hamilton's Lane fit for many many reasons, and that is just the full power of a firm UH number one that's been doing it for eighty five years in total portfolio solutions across all asset classes, paired with a firm that's been doing only private markets for

the last thirty years in an open architecture fashion. So looking for the best of breed UH managers in venture, private equity, private credit, UM, infrastructure, real estate, UM just across the board real assets was incredibly important to us. We're not saying that UM Hamilton's Lane is the only source of our capabilities. We still have all fiduciary um UH power to operate with Hamilton's Lane as well as tap into other areas of expertise as we believe that

we need to. But Hamilton's 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 UH total portfolio public to private markets. So you know, it's it's just an incredibly important time in the industry. UM. You've reported I think in in past UM podcast, but also I think you might have had Hamilton's Lane CEO

Mario um on the on the podcast as well. UM, but it's it's you know, there are more private companies seventeen thousand, to be exact, over a hundred million dollars in revenues relative to hundred in the public markets, and so limiting yourself to only of the investable large company universe if you're only a public markets investor, just makes

no sense. And so as quickly as we can responsibly offer this and democratize access to private markets, UM, with the power of Hamilton's Lane, is what we want to do, both for the individual Welsh market, UM, but importantly the middle market for institutions as well as even large markets. Yeah. The the interview with Mario Giannini was October, 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, Christina Hartzeller Zavoya, Gene Hynes at Wellington, Catherine Keating at b n Y, Melon, Penny Pennington at Ed Jones, But you had to quote that really caught my ear, which involved the rarity and responsibility of your position. Could you explain what you mean by that? What what is the rarity

and responsibility of a female CEO in the financial services industry? Well, I would say, first, UM, you know, we we all know it's a rarity. Um, they're all of the women you mentioned, plus many many more are coming through the ranks. Kate L. Hillo, I would mention as well, UM, my global ce IO that I was proud to bring on board from Goldman UM. So I'm very I think we're even in more rarefied air to have a woman CEO and a woman ce IO UH 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 too is to give voice to authenticity and two 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 uh. 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 UM, it makes it a more inclusive conversation. Uh, it makes it more focused on outcomes and purpose. And I'm not saying that that's a gender specific thing, UM, but but I do believe that operating in a manner that takes into account the responsibility of the seat is incredibly important because people are watching, UM. And whether you're UM, ethnicity

is different, UM, 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 you're that your voice flows with the magnitude that it should have to represent h your thoughts. UM. You know,

again constructively, appropriately, collaboratively. UM. But I but I've 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 UM individuals

at the table. So the the the group intellect took over more than UM, more than me feeling like the spotlight was on me as the only Unfortunately, I'm no longer and only, and I think that's just going to continue to change it at warp speed. So historically finance has been wildly underrepresentative 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 twenty five or so years ago. You know, we alluded to E s G investing earlier. Let's let's talk a little bit about it. There's been some criticism about how subjective the screens are. Uh, some end up just looking like plain vanilla indexes. What do you say to this criticism about the state of environmental, social and

governance investment? Well, it's burgeoning. Uh, there is no question, um that this this is not slowing down in its momentum um or its import Uh. 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. UM. But I do believe it's only the beginning,

So I'll start there. Your your question was more about indices, and um, the fact that there's been a spotlight on UM the understanding of what these various indices or managers for that matter, m 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 talking about E, S, g as it if it were one thing, it's it's clearly three very nuanced and complex um UH desires or impact that one wants to have, and not everyone cares equally about the

E or the S or the g UM. 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 UM investors are trying to solve for. And so I believe that that UH number one is

difficult to find out. Number two, it's difficult to fine and it's also difficult to measure and it's difficult to predict. So we we have we have complexity, we have demand, and we have enormous need UM and so the drumbeat for the industry and we all take it very seriously, is very high to make advancements in e s G. Investing and personalizing to those values at scale in a manner that goes beyond managing the investment risk, which is where I think these indicries 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 UM, 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 know that UM the chairman Gendler is very focused on that, and we should have something coming out with more guidelines

in the near future that will be helpful. UM. The second main thing within diseases their 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 one? You know Scope two or Scope three? You know, is it is it the

company's own carbon footprint? Is it? How scope to it makes its way into uh the distribution UM or the client UM and then Scope three as suppliers And so this is this is just a it's a fast changing critical UH and clearly societal UM demand that I would say the desires are out stripping the capabilities at the moment, and you've 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 all pause there, But I'd love to talk a little bit more about what we're doing specifically in that. 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 still maintaining decent returns. Well, this this all goes back to what I said at the beginning, which is um Russell is dominant where the puck is headed UM. 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 the s G 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 nowhere active investing can lead to the desired outcomes and be worth the price that you pay for the act of investing. And that is no truer than in E s G. And so this is where active engagement UM 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 UH, 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 UM climate risk, social risk, or governance risk being an investment risk and moved toward UH investing with your values and wanting to make more of a sustainable, positive impact on the planet, on society UM.

Whatever the issues, maybe you absolutely have to lean in UH to active management because that's the level of engagement UH that allows you to UM use your voice and your dollars UM to discuss with companies how they will change or manage UH their companies to align to those goals or not UM 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 E s G 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 US, UM is there um there um 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 one, but Scope two and Scope three. UM is absolutely necessary 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, an active engagement really interesting stuff. One of the things you said previously I thought was very interesting, which is about half of people being born now, Uh, this this

decade might live to a hundred or longer. What does that mean for the economy, What does that mean for our health care system? And what does it mean for markets? Oh my goodness. We could talk about this one for a long time. But I I love the quote, uh that demographics is the future that already happened. UM it barring UM. You know, outbreaks like the pandemic. UM. We we we do know that this this is our this

is our world UM. And you know, on the on the healthcare front, I do sit on a corporate board UM sona biotechnology. It's a fascinating, fascinating field to talk about UM life spans, but we importantly need to talk about the infrastructure around the world to deal with this aging demographic UM. And that comes in lots of different forms.

But but I'll focus it on the work we do, which is I envision UM that you know, with increasing lifespans, you certainly want UM equally health spans UM, which which is very UM dependent upon science and much of the work that's being done with with biotech and vaccinations and

helping this live better lives for longer. But it's also ties into what we do, which is I think about his wealth spans and ensuring that we could afford to live to be a hundred and twenty right, And that may not happen for me, but I'm pretty convinced it will happen for uh, my kids and that generation. And so from from that perspective, you know, it goes back

to purpose. Um. But but I've talked about this a lot, and um you may have seen it in some of your work, but you know, it was a couple of years ago that the that the UMU Davos reported on this that um, there was a seventy trillion dollar existing gap in what people need a retirement versus what they have and growing quickly just because of demographics and math to four hundred trillion by 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 a hundred and fifty percent of the developed world's GDP. So it's a huge number, uh, that we cannot afford to ignore, and we also cannot have afford to ignore that we are retirement infrastructure uh was was set up at the late eighteen hundreds and then reaffirmed during the

Depression when most people didn't live past sixty. So it's never We've never funded as a society, nor did we ever intend for people not to be productive uh, productive citizens for nearly 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 uh, it's a it's a big question. Uh, it's deserving of solving, which is why I talked so much

about outcomes. I do believe in financial literacy. It's part of why this became a very personal UM endeavor for me is making sure that people understood the power of compound interests. They understood the power of leveraging their hard working activities to provide for their financi security. UM. That went for my family, but also UM a lot of other people that I've counseled over my thirty five year career. UM. But but you can't you can't educate someone out of

a crisis. And I would say for our aging boomer generation. It absolutely is a crisis that will pay for as a society because it's the only way we can pay for it. UM. 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 it's 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 the path to financial resilience and enable them to be empowered with data so that they can make better choices for themselves. 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 um to not be educated in a finance degree or an investment degree or go get a c f A. In order to figure out the complexity that we've made of this system while still not solving the root caused problem of financial security for people around the world, really intriguing

UM so so let's take that concept of the gap in retirements 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 pe on venture capital and hedge funds as a way to offset

possibly lower returns from stocks and bonds. Absolutely critical UM we should we should allow and avail our clients of responsible access within their parameters and goals, responsible access to

as many forms of UM of investing as possible. And certainly the advancements that are being made UM in the you know, I don't want the conversation to go off in these areas, but the the advancements that are being made UM with um UM access to potentially different asset classes that may grow over time through UH digitization, through blockchain AP peer to peer investing, I think are very exciting.

And while they're highly speculatives 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 alternatives quote unquote couldn't

be more different. UM. But the the other reason I don't like it is we've traditionally talked about portfolio construction as a sixty forty 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 tap in to everything that you mentioned

as appropriate. We use hedge funds, venture real assets, real estate, private credit, private UM, private equity, so all forms co investment secondaries have to be managed very purposely UM, 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 managers 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 wife felt a sense of

urgency to do it. This will be a critical area to tap into in order to solve for this 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 um or eventually we're not there yet um 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 inter relating with the other investments that they've already made in their portfolios. Really intriguing and as long as we're talking about the state of investing today. What are your thoughts on things like defy and crypto. Do

they have a place in investors portfolios? Or is this still too new and speculative UM twofold answer The first is when we talk about crypto, uh, there clearly our speculative bubbles UM, and I think unfortunately the conversation, whether it be around doage coin or bitcoin, distracts from the innovation that truly is occurring within UM, the technology and the platforms and the concept of peer to peer networks.

So UM, I think you've had several guests on over time UM 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 and ultimately the core of innovation efforts as we move forward. However, like any um burgeoning field, and again again I aged myself back in the eyeball days of 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 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, UH and investment industry. But I believe it's a it's um higher level impact than simply um distilling it down to cryptocurrencies. Um. 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 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 occurring right now in that segment. 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 it looks like we're going back, um into more defensive crouch with COVID. Tell us what you're streaming these days? What's keeping you entertains at home? Um? Well, several things. We're a big podcast, uh family. Um. But but since you mentioned longevity and health spans Peter Atilla, the Drive is one that I

listened to with regularity. Um. The other one, uh is Sam Harris. He has a couple of different apps. One it's making Sense, but the one I listened to with equal regularity is Waking Up, which is a meditation philosophy app um, which I find very interesting. And since it's top of mine, I'll give you the guilty pleasure one. While I was rapping gifts last night for my uh, for my for my kids and my family, I was

watching the latest episode of Succession. I'm a season behind it, and I don't think I've ever seen a show where there isn't a single care Do you actually like everybody is just such a contemptible human being? Exactly? Um, let's talk about let's talk about mentors who helped shape your career. Um, well, you know for most people, uh, and for me as well. It's it starts with with my family. My father was UM was an instrumental figure in my life. I lost

him six years ago. UM, but he was my my best friend, my confidant, uh in in my career, in my life, but also my mother. Early mentor in hard work and the human aspect of approaching of approaching business. UM. But but I would say early mentors from just a pure career standpoint, I had many. I learned from everybody. I feel like I still have mentors, and I know you're asking about early, but I really it's equal opportunity.

When I think about mentors, I would say probably one of the most pivotal ones that you think of in a traditional sense though, would be Conrad Fisher UM, who is one of the greatest investors that frankly the world doesn't know. But he UM is phenomenal and was my predecessor um as um 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 UM continues on to this day.

So but I would say I find mentors everywhere, UM below me next to me, UM, I'm able to learn from everyone, and I seek to learn from everyone. Really interesting. Let's let's talk about books. What are some of your favorites and what are you reading right now? Reading right now is the code breaker Jennifer Dubna on gene editing, So that foots a little bit, um with my board director role with Sona Biotech. And then favorites. Um, I would say, you know, favorites I define as I dog

ear them. It drives my husband crazy. I highlight them, my dog ear them, and I actually end up buying a second one, So I don't ruin it. Um. But I would say sapiens. I've always come back to fact fullness. Um. Hans rose Lane Um is a wonderful book, UM and UM. And I referenced that a lot. And then anything that Danny Kahneman writes or talks about I love. UM. So those are some of the favorites. 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. I would still say go for it, um. You know, just like I felt when I came in an that the best had already passed me and I missed the you know, threefold increase in the Del Jones industrial average. You know the end was near. UH, it never is. And I do believe that investing and finances core UH 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 UM anyone coming into the field UH 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. Really quite intriguing, and our final question, what do you know about the world of investing today? You wish you knew thirty five years or so ago when you were first

getting started. UM, I would say, I might be repeating myself, but but I I really wish that I understood thirty 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 live 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 scaleable ball And now all of the innovation that we're seeing today is exactly that. So I wish all of us had understood thirty years ago how critical that need was going to be with an aging demographic and

how fast the clock was ticking. I wish we would have done things differently versus, you know, being so concentrated on putting all of our R and D dollars into beating benchmarks, which which helped some people, but it didn't help as quickly as it needed to. Quite quite interesting. Thank you Michelle for being so generous with your time. We have been speaking with Michelle sites. She is the

chairman and CEO of Russell Investments. If you enjoy this conversation, well check out any of the previous four hundred or so we've done over the past eight years. You can find the was at iTunes, Spotify, wherever you find your favorite podcasts. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot Net. Sign up for my daily reading list at hults dot com. Follow me on Twitter at Ridholtz. I would be remiss if I did not think the team that helps put

this conversation together each and every week. Mohammed Ramaui is my audio engineer. Paris Wald is my producer atka vlm Run is our project manager. Michael Batnik is our outgoing research director. I'm Barry Halts Human listening to Masters in Business on Bloomberg Radio