Training Grounds: Wellington Management – Jean Hynes (EP.423)

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2:32Hello, I'm Ted Seides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at CapitalAllocators.com.

3:21miniseries, calling Carnegie Corporation and Bain Capital to better understand how certain organizations have developed industry leaders. Wellington Management is one of the world's largest privately held asset managers, managing over$1.3 trillion in assets with 875 investment professionals across 19 offices and nearly a hundred-year history, with an unusually low level of turnover along the way. Wellington has developed, recruited, and retained leading global investment talent across public equities, fixed income, and recently private markets as well. My guest to discuss this training ground is Gene Hines, the CEO of Wellington, who spent more than 30 years at the firm starting as an administrative assistant.

4:11Our conversation covers Wellington's cultural values and boutique investment team model, including apprenticeship for junior talent, recruiting at the mid-level, and promotion all the way to partner. We then discuss Wellington's evolution from a U.S. equity value shop to a global multi-asset, multi-strategy powerhouse, and Jean's evolution from a portfolio manager to CEO. Before we get going, I was walking down the street and saw my friend Brian Furtado, the head of the family office practice at Apollo, on the other side of the street with a handful of shopping bags. Brian is a very affable, can-do type of guy.

4:52So as I crossed the street to say hello, I was surprised when he appeared frazzled and mumbling to himself. He looked up at me and repeated a phrase twice, just keep buying, just keep buying. Since that December 23rd, three years ago, just keep buying has become a mantra in our house during moments of holiday-induced stress. It's not really about retail therapy, although my wife Vanessa might mean it literally from time to time. It's about remembering that the sprint to the holidays can bring some stress, but the actions we take spread joy and cheer when the big day comes. So whether you're celebrating Christmas, the first day of Hanukkah, or anything else on December 25th, when you feel the inevitable pressure of the holidays, take a small action with the gift of giving in mind.

5:43Just keep buying. Thanks for spreading the holiday cheer with Capital Allocators. Please enjoy my conversation with Jean Hines. Jean, great to see you. Great to see you too, Ted. Well, I'd love to dive into this training ground story of Wellington, going through your story as a classic homegrown talent. So why don't you take me back to those early steps in your recruiting and training as you worked your way up here? The recruiting is probably not as interesting as the training. So I found my way to Wellington, which was a very small company back in 1991 when I joined under 300 employees. I started as an administrative assistant.

6:31Very unusual. I only had two interviews, not the typical 30 that we have now. But the early couple of years was really about working in the research department and then 18 months in getting to work with Ed Owen. In Wellington, particularly on the investment platform, we talk about having an apprenticeship model. And I think I am the classic apprentice, particularly that first decade, but I would even say my second decade of learning to become an investor. So if I take a step back and think about that first decade and working with Ed Owens, it was really, one, getting to know companies and working with him with pharmaceutical and biotechnology companies, getting the skills to do that.

7:17So that meant for me coming from an undergrad degree at Wellesley, going back to Harvard Extension School and getting accounting background, taking my CFA and taking biology courses, which was really necessary to understand what was happening in the subject matter that I was studying and the industry I was studying. What Ed taught me in those first few years, and it was really about observing him and being in every meeting with him, was really about how do you evaluate companies and take all that information in and then gain some insights. So is that one-on-one apprenticeship model common across Wellington?

7:58Yes, and I think it still is in existence today. So in our$1.3 trillion, it really is approximately 60 teams. across equities, across research sector teams, across fixed income, long short strategies, and now private strategies. Most are small teams of anywhere from two or three to up to 10 people that spend most of their time together. And so for me learning those first few years, a typical week would be which companies are coming into our office? Are we going to see Eli Lilly this week? Are we going to see this biotech company? And then you have a daily, a weekly, a quarterly cadence to how you do the work.

8:42If you look today across those 60 teams, how would you characterize some of the similarities in that training and apprenticeship model? If you look across the 60 teams today, there is a combination of people across their career spectrum. So we continue to have a really robust early career group at Wellington. So people who start out either right from college, a few years out of college, or from MBAs that are starting their career in the investment management industry. We have people that we hire that maybe have spent 10 or 15 years or 20 years even in the industry. And then we have a series of people that are very experienced in their seats, either as researchers or experienced portfolio managers.

9:31So I think that's what's similar about it in the sense that you have the generations of experience on most teams, and that helps us with succession because we think succession is so important for the continuity of the business. And we have this concept of how do you build a bench in a team? And then there can be a lot of movement amongst teams as well over time. So let's break down that unit of the team. You talked about your experience early on, some of that initial training. That mid-layer, lateral hires, how do you go about that interviewing process? We have a very in-depth interview process.

10:08So by the time someone joins Wellington, and they will joke about it, like they will typically have gone anywhere from 25 to 35 interviews. I remember a few years ago, a new employee who had just been through the process. said by the time I was on my 25th, 26th, 27th interview, I felt like I was a Wellington employee already. I wanted to come. And by the time the Wellington employees have interviewed the person and get the feedback, we want them to come. Sometimes we're looking for very specific skills that we don't have at Wellington or that we want to replace. If it's a succession or if we're in a new area of the market, something we want to add.

10:47But really importantly, it's about culture and it's about values. And that would be being a client fiduciary, having high integrity, being really collaborative. And you can interview for collaboration. If someone wants to be a lone wolf and doesn't want to collaborate, they shouldn't be at Wellington. That's not the place for them. There are many very successful investors who probably are successful in their own right, but we wouldn't benefit from them and they wouldn't benefit from the Wellington platform. And so it's shared values and it's collaboration are what we really get out of those interviews.

11:23And then we're also interviewing for the skills. How often does someone get near the end and then doesn't ultimately get an offer? After that number of interviews, people will usually go to offer. I think our hit rate on offers is very, very high. By the time someone's invested so much of their energy into the process, they want to come to Wellington as well. We don't make many mistakes in hiring and who we bring in the door. So when that person comes in laterally on that team, how do you think about the onboarding of that person onto the team? The onboarding happens deliberately and then very organically as well.

12:04So if someone's coming on a team, there's a few people they're going to work with every day. And so they're the main people that are going to make sure that that person has a good onboarding. But then we are also very deliberate over time of creating an onboarding plan. Because like every company, Wellington has its ways of working and it can be a little overwhelming to get to understand Wellington. Let's say you're coming in as a global industry analyst. You come in September 1st. How are you going to meet the portfolio managers and the other global industry analysts over the next number of months?

12:41Very, very deliberately so that you get to know people. By the time you launch in coverage, which might be between three and six months, you get to know a lot of people. So we're very deliberate about setting up an onboarding schedule. People at Wellington love to meet the people. And they tend to already be in the meetings with them or in our investment meetings. So they see them. And so we try to do that pretty deliberately. What are some of those norms that you said are a lot when somebody comes in? Let's say you're a business developer. We have more products than the average asset manager.

13:14We have about 250 products and 60 teams. There's a real beauty to that diversity, but it can be overwhelming, particularly to some who are used to having a more narrow product set, or particularly if they're coming from a small firm, they may have one or two products, and all of a sudden they have potentially 250 products to get to know and 60 major investment teams versus a few. And so that's probably the one we hear the most. One of the things about our investment platform that we've really worked very hard on breaking down silos. And so there's a lot of collaboration, not only amongst a team, but then the equity teams and then amongst the fixed income teams and all the way down the line.

13:58So when you come to Wellington, you may be a private investor and getting to know all our global industry analysts might be important for your role. How do you meet 500 people over time? That could be overwhelming because someone might have something that's helpful to you. Now, that's impossible to do all at once. People often ask me, what's the secret? What advice do you give me about being successful at Wellington? And one of my answers is, we're not a political organization, but we're a relationship organization. Getting to know people is important. And that's how you create networks and collaborative networks.

14:40People really want to collaborate. And so how does someone who comes into Wellington really form those networks is important over time. And then over time on an investment team, how do you go about your regular evaluation of talent, its reviews, and then changes, whether promotions from the junior level to that mid-level and mid-level to senior? Every year we have a feedback mechanism where you will have anywhere from 10 or 20 people that you work with most closely provide feedback on you, both qualitative feedback and quantitative feedback on your skill in your recommendations over the past year, but also the level of skill over time.

15:23So that's one part of the evaluation process. So if you take our director of research, Mary Prishak, who's responsible for all of the analysts, she will get feedback on the 60 plus global equity analysts, and it will be very rich and robust feedback. The other part of the feedback is quantitative. What is the one year, three year, five year, 10 year down to how good were they recommending? How good were they at impacting portfolio managements? How much have they impacted actual portfolios? What is their results in their research portfolios? Then there's self-reviews. So I often tell people, spend a lot of time on your self-review.

16:06One, it's important for yourself that you are reflective about how well you've done and where you can improve. The manager then takes all of that information and provides a review of an individual. That happens at the individual level. And then at department level, it's like, who's done really well? Who has not done as well this year? And we have both short-term ratings and long-term ratings because we know in this business, there are always years where you don't do well. But we want people to be reflective of that because that's the short-term client experience. But the most important rating is really how someone's doing over the long term.

16:45On that quantitative piece, how do you think about process versus outcome? So we have the processes that determine yearly compensation. And then we have the processes that determine what is someone's philosophy and process. We have an oversight group at the firm that looks across all of the investment platform and says, how is the whole investment platform? Are there any outliers? Are there outliers that are doing too well? Are there outliers that are doing not too well? And then that allows us then to go down a little bit further and delve into a team, perhaps, that maybe is doing well or over-earning alpha.

17:22And then we have a group in each department, really, that focuses on what's the philosophy and process of that investor? Are they actually doing what they're saying they're doing for clients? What's the alpha targets? What should they be delivering based on their philosophy and process? That's both on early career. What is your philosophy and process? How it might be different from your senior investor? Then we do it continuously over time because it shouldn't change drastically, but it should evolve over time. We do then offshoots of that. So how do you incorporate factors into your philosophy and process?

18:00How do you incorporate ESG factors? How do you incorporate portfolio construction? That's the process part of it that becomes the output. When you gather all that information together, you get to compensation discussions and promotion discussions. How do you decide with all that information when someone's ready to take the next step? Our director levels have the decisions to promote someone to an analyst, and they have their frameworks and what they expect to reach that bar. You want to be open and transparent to everyone about what it takes to reach that bar. So if you're a research associate, what will it take to become a global industry analyst?

18:42If you're a team analyst, what will it take to become a portfolio manager on that team? So we have frameworks in place that are transparent throughout the organization. We also have frameworks about what does it take to become vice president, a managing director, and a partner. And those criteria are actually similar, but obviously the level of impact rises with each one. And so it's very transparent about character and behavior, skill, impact, essentiality of the role. Those all go into our promotion processes. And over time, we have tried to define what success looks like. So one of the other things we like to do is storytell.

19:25And so we recently named approximately 50 new managing directors. We have what we call a managing director advisory committee that helps the managing partners with a lot of the evaluation. They helped us narrow down all the input we've gotten across the firm on potential managing director candidates. And then we put out not only who was named a managing director, but we told a story about why. And so that's part of role modeling what it takes to reach the next level. When it comes to that prized partnership, what are those criteria that go into determining who will be the next partner from managing director?

20:05With all of our compensation and promotion processes, we gather a lot of input. For partners, it starts with partners. It's a nine-month process. It's a very intense, robust process to get feedback from the partnership, to get feedback from our line management on who they would nominate for partners. And then the re-managing partners are responsible for nominating partners that will be elected by the partnership. Over many, many years, there have been more and more partners. You add a new partner, they have a slice of the pie. Where does that slice come from? So there is a pie. When we determine merit over time, we can only split 100 % of the merit.

20:48It can't be more than 100%. But over time, we hope that by adding great skills to the partnership, that we will grow the pie. As we've grown over time, what will determine the size of our partnership will be one, the impact partners have. It will also be where we are in successions. It will be what capabilities we have. We would probably be a smaller partnership if we had not 60 teams, but 20 teams. We'd probably be a smaller partnership if we just stayed U.S. and didn't globalize. mobilize. The size of our partnership will be determined by the amount of people that are having that kind of impact that allows us to grow, add capabilities, serve our clients in all parts of the world.

21:33We don't have a determined size. It's really based on impact. And are they adding something unique to the partnership? What's the framework that you use for succession? I'm 33 years at Wellington, and I'm not an unusual partner at Wellington to have spent one my entire career or a long career at Wellington. But I think it's a very personal thing when people want to leave the partnership and retire. Sometimes people stay well into their 60s and sometimes people say, I've had a wonderful 25, 30-year career and they're in their 50s or early 50s and they say, I want to do something else in the next chapter of my life.

22:16So I think it's a combination of what are the personal desires of our partnership and what they want to do after spending a lot of time. And part of it is when successors are ready. It could be a combination of that. Sometimes, hopefully not often, it's because of performance. That's our job as managing partners to make sure that everyone in the partnership is performing. The investment business, it is a really hard business. In order to be a great investor or a great business person in this business, it's an intense amount of work. And so I think people over time want to keep that intensity and they're doing so well for their clients.

22:58I'd love to pull on that thread of those instances where the performance isn't what it needs to be. Not necessarily the partner who's decided to retire, but along the way, what's that historical turnover been in the organization? The turnover in the organization overall is under 10 percent and turnover of investors is lower than that. So one of the things that is a benefit of being a private partnership is that we can take the long-term view on talent, but we also have to have a high bar. I've seen many successful investors who've had a downturn and then they've recovered and have gone on to do great things.

23:38And then there might be times that the market structure evolves and the investor doesn't evolve alongside. This is a job where you have to have a lot of resilience in overtime, maybe something in someone's personal life or the toll of investing over time that that resilience isn't there. So those are the things we look for. And we'll go through an evaluation at the management level, the management line managers who manage investors. We often will get a lot of feedback from their peers. We often have peer SWOT teams to help. So the combination of, first of all, we want to try to help. And then it's a series of conversations to say, maybe it's time to leave.

24:21So when the turnover is that low, and some of it has come from some underperformance that doesn't work its way out, it sounds like there's not a lot of voluntary departures. And I'm curious, what is it about the culture of the investment team? in an industry where there often are people who want to go somewhere and hang their own shingle that's kept so many people here? I think there are two things. One, it's the culture, that we have a very strong culture of great people that people like to spend their days with, because that's very, very important. Number two, we have this culture of collaboration.

25:03A lot of people in organizations will say they're collaborative. We are insanely collaborative. And that makes people better. So back to what we interviewed for, do people want to learn from others and do they want to share their knowledge? You have a group of people who are better at their jobs because they're part of the broader Wellington ecosystem. I think that keeps them there. And that's what attracts people. We've had people come in and they do better at Wellington than they've done in their previous firms because of the collaboration. And then finally, it has to be a very positive economic.

25:41Our private partners have the ability to become a partner and be an owner in the firm and the economics have to work out that they're equal to better than setting up your shingles someplace else. I'd love to walk through some of the history of how you've evolved as a business and some of the interesting dynamics and challenges that have come along the way from really that early start. What were the most important early strategic decisions in changing from that original boutique? So when I joined in 1991, it was the very beginning of what I'll call our research portfolio franchise. And I think we had just started the year before.

26:25That was a U.S. portfolio. And then after that, we had strategies that focused on international and global and various versions of the research analyst managing money. That was very unusual in the 1990s. So I think what resulted in that is that becoming a global industry analyst became a destination instead of a stop on the way to having to become a portfolio manager to be recognized and being able to run money. And so that became just a very important part of the model. If you take Wellington at its core, we're a research shop. Research insights is what we do really well. Having the ability of researchers to be able to express those insights in portfolios themselves and not necessarily just through the portfolio managers became a really important part of one retaining talent, which many of our peers, if you go back to the 1990s, the great researchers at the firm's left.

27:31And so I would say also in the mid-1990s, we started a hedge fund business that was based on talent. So we have a 30-year-old long short business. And that also allowed many of our really strong investors to have another outlet within the Wellington structure. And I I think that just kept a lot of people at Wellington. That mindset of both innovating for our clients and also innovating for our investors, I think, has continued over 30 years. One more I will highlight would be going to the privates business. That was driven by a growth investor who recognized that many growth companies were staying private for longer.