Wellington’s Jean Hynes on the Art of Investing and Finding New Markets

0:05The art of equity investing is really dreaming what is the potential of something that could be so transformational that people can't imagine it. I'm Alison Mass, Chairman of Investment Banking in Goldman Sachs' Global Banking and Markets Group, and your host for this episode of Goldman Sachs Exchange's Great Investors. Today, I'm sitting down with Jean Hines, who's the CEO of Wellington Management, an investment management firm specializing in equities, fixed income, hedge funds, and private assets with over$1.3 trillion in assets under management.

0:41Well, welcome to Great Investors, Jean. So happy to have you here. Thank you so much, Alison. Really, really glad to be here. So I like to start these interviews by talking about your background. You majored in economics, but your college experience was somewhat unusual. So tell us about that. Yeah, so I went to Wellesley College. Just maybe a little bit of background. My parents were Irish immigrants, and so I didn't know where I was going to go to college. Just going to college was a big thing in my family. And I arrived at Wellesley. I had pretty much a full scholarship, so I loved the Wellesley alums ahead of me that provided that.

1:17And my mother, being Irish immigrants, my mother wanted something she recognized. So my first semester was computer science, which is the only C I got in my whole academic career. But I found my way to economics the second semester, and I loved it. And actually, the interesting thing is I loved microeconomics, which is actually what I've done for my whole career. It wasn't just macroeconomics. It was the micro part where I really excelled at. Were you a first-generation college student in your family? So they must have been really proud. Yes. Now, you've been at Wellington for over 35 years, which is amazing.

1:55Today. Today, congratulations. My third Monday of 35 years ago, I started. Wow. July 20th. That's fantastic. What a milestone. So tell us a little bit about your first role at Wellington. So going back to Wellesley, I took one course. I didn't know what I was going to do. I loved economics, but I didn't really know about the finance world or the research world. But I took a sociology class and I got a job in my junior year of college. And that's how I got introduced to the stock market, got introduced to the world of finance. I want to learn why stocks go up and down. I could verbalize that leaving my senior year of college.

2:34And back in 1991 was not a great job market. You had the Iraq War, but I found my way to Wellington. And Wellington was a pretty small firm at the time, under 300 employees. And I took a job as an administrative assistant in the research department of Wellington. That is a great story. And I remember the recruiter telling me, this is a great company. Don't worry about the title. So I always say. We use that same line, Nicole. Don't worry about the title. And it was true, actually. It was very true. I immediately did research, it was sort of a combination of administrative assistant, research assistant.

3:09I worked with three analysts, global industry analysts. I worked on models and I opened mail. So I was very fast at opening mail because I was very interested in sort of the research aspect of it. So you said when you joined, there were 300 employees. How many do you have now? 3 ,000. Wow. That's a big difference. It's a big difference. So you've said you didn't initially see yourself as a future CEO. So tell me about when that changed. So I never saw myself as a CEO. I think it began to change in 2014 when I became a managing partner at Wellington. And I was working with an executive coach for the first time.

3:49And she asked me in the beginning of our session, do you want to be CEO someday? And I said, no, absolutely not. I was managing$70 billion in assets from Vanguard Healthcare all the way to Longshore Biotech. I love investing. I love healthcare. And so it just wasn't my ambition. The managing partner part of it was like a leadership part of it, talent part of it that I was super interested in the talent leadership part of it. And then after working with Brendan Swords, our CEO, for about a year, I could see like I could actually see, well, the decisions he was making were very similar to the decisions an investor makes, like operating in that gray zone all the time.

4:31and so I could see myself in him in some ways and then I said at the end of that year of coaching maybe I do want to be CEO and she gave me really good advice and she said if you want to be see if you think you even have an inkling then maybe we should continue working together and that's been that was really good advice because over the next six seven years it was really about could I be it did I have the skills to be it how do I gain the skills did I want it how did I want to spend my last period of time, my last decade of this great firm? Did I want to do it as in this role? Or did I want to stay and really shepherd the healthcare business?

5:11And so it was good to have a thought partner. Well, there's a lot of people who are very glad you made that decision. That's wonderful. So when you joined Wellington in 1991, the company was primarily focused on equities. And walk us through the growth from then to now in terms of the asset classes in the business space. So I love thinking about Wellington in decades. I think it's a great way to look at companies in general and industries in general. And so we were primarily equities, and not only equities, we were primarily value equities back in 1991. And so I would think about the decade of the 90s as expanding our equity capabilities into mid-cap equities, into growth equities, into all aspects of equities.

5:55Towards the end of the decade, starting international and global equity capabilities. The decade of the 2000s would be our expansion, beginning of our expansion into fixed income. We always had fixed income, but it was a much smaller part, a minority part of our business. So in 2004, we began a big investment into fixed income capabilities. And then also in the middle of that decade, which is why I went to London, we began to globalize our investment platform. And that meant, and I think the leaders at the time were prescient in saying, we are not going to be able to hire people in Boston to do everything we want to do.

6:37Because there were so many companies being created in Europe and in Asia, and we weren't going to get the best talent. And so that was the reason behind first London and then eventually Hong Kong and Singapore, expansions of our investment platform. And your view of 2010s and 2020s, how has it evolved? Yeah, and then the 2010s, I would say two areas that we expanded in. From an investment capability perspective, it was in we began our privates journey in 2014. We continued our globalization journey. And then we began to expand from a channel perspective into wealth in Europe and Asia. In the U.S., we had these two great partners, Vanguard and Hartford Funds, and we were looking for them in Europe and Asia.

7:28And actually, those kind of companies don't exist. And so we began our – that was a big expansion of our capabilities to really serve the wealth channel in Europe and Asia. And then this decade and this decade, the gene decade, I think if I had to take a step back and when I retire someday, I hope we will say that we are we have a much stronger capability, manufacturing capability in alternative investing. The decision that was made towards the end of 2019, so starting in 2020, was to separate hedge funds out of our equity and fixed income business and to separate privates, which were then in our equity business.

8:08And that was the right decision because then that has allowed us this decade to really focusing on building those capabilities in a really deliberate way. And we have now 100 investors that are dedicated to hedge funds and privates, up from a very small number in 2020. And that's fantastic. Of your assets under management, I mean, what is the percentage across these asset classes? So we have over$50 billion now in alternative assets across privates, hedge funds, extension strategies, CLOs. So those have been the areas that we've expanded into in the past five, six years. So that's real scale. Yeah, real scale.

8:54All right. Now, you've spent most of your career investing in health care. What initially attracted you to that sector? So initially, I wasn't necessarily attracted to it. I was given the opportunity to work with what turned out to be my 20-year mentor, Ed Owens. But the interesting thing about Ed is back in 1992. So I started in 91. In 1992, he managed Vanguard Healthcare. That was about$500 million now, back then in 1992. He was starting a biotech portfolio. He was starting in sort of an all cap global healthcare portfolio. And he was the analyst. He was the global industry analyst that covered biotech and pharmaceuticals.

9:37And they wanted him to hire someone to work with him. And he did not like change. And he did not want to hire a senior person. And there you were. And there I was. For a year, I was his administrative assistant plus his research assistant. But really from day one, he brought me to every biotech meeting, every pharmaceutical meeting. Early on, I would go to client meetings with him. We were just like a match made in heaven in terms of what he needed and someone for me to like, he was such a great mentor. Well, it sounds like you're both very lucky. Yeah. It's a great match. Now, is there a specific investment or a deal from early in your career that taught you a really important lesson that you think about today?

10:18First of all, working in the pharmaceutical and biotech industry, which was the area that I focused on, what a privilege, right? Every industry, I actually have a lot of friends at Wellington who are just as passionate about insurance. But really, like when you think about biotech and pharmaceuticals and the ability for that industry to really change people's lives when it really comes to people's health. So I just had the privilege of interacting with so many amazing companies and CEOs over that period. So maybe I'll talk about two. One, I'll start with the lesson. Early in my career, you learn lessons that you hope you never repeat again.

10:57And I would say one lesson was there was a company called Elan, which turned out to have the early days of what is now the first Alzheimer's treatment. But they were a specialty pharmaceutical company, and I was very interested in them because of the Alzheimer's and their MS drugs, multiple sclerosis drugs. But they had come from a kind of a background of doing drug delivery and specialty pharmaceuticals. And I avoided them for so long until the science began to show. And then they had a really serious earnings miss. And it was all in this other income line. So they had earnings hidden in the other income line that were not sustainable.

11:39And so that was a really harsh lesson, meaning you as an investor, it's not good enough to say, aren't going to focus on this fun part of studying multiple sclerosis or Alzheimer's, you also need to understand every aspect of the P &L, that you understand every line and you dig in. So I never let that happen again. So that would probably be a lesson of making sure you don't make the same mistake twice. And then maybe just as importantly, because lessons are what works and what doesn't work. The other lesson was we were investors in this company called Immunex, which is now part of Amgen. And they developed the first drug that really changed how you treat inflammatory diseases.

12:22It's called Embrel. It's still around. It's one of the largest drugs in this category. And it was so transformational. And I remember it was my first big call, meaning the call that really separated me from peers out in the market because you had to imagine a market that didn't exist. I mean, there was lots of people who had inflammatory diseases. This turned out to be rheumatoid arthritis, and they were treated with steroids. There was no market for them. So you had to imagine both how fast you could penetrate that market and also what the pricing could be. And it was such a big advance. It wasn't like a lot of times in medicine, you step up.

13:04You step up to better treatments over time. This one was like a gigantic leap in efficacy. And so it was very surprising. So like dreaming, right? Like the art of equity investing is really dreaming what is the potential of something that could be so transformational that people can't imagine it. I'm just curious. How did you imagine that? How did you make that call? I think it was based on partly the data, partly was published in the New England Journal of Medicine. It was presented. But it was really interacting with the rheumatologist, like the specialist. And you had to listen to them about what they were going to do.

13:46And so it was the beginning of really using physician specialists to really dig into research. So that's part of your diligence process, really going to the source. That's fascinating. So there's a looming patent cliff driving innovation and M &A activity in the biopharma sector today. Do you think this will turn around the recent underperformance in the health care sector? So I would say there's always a patent cliff. It's a looming patent cliff, but it's perpetual in the sense that it's the only industry in the whole world where once a patent expires, you could lose 80 or 90 percent of your revenue.

14:25So the cliff part of it is the reality when a big drug goes off patent, you lose it right away. So it's an industry that constantly cannot be complacent and constantly needs to innovate and evolve. And that's the exciting part of doing the research. And it's also because there's so much going on. They can evolve because there's so much going on in science. And so I would say that's the natural part of the industry. I think the recent underperformance, and now I'm 18 months away from investing in health care. But I do think the sort of uncertainty of governments, and it's interesting, we're still in the healthcare and hospitals and insurance.

15:07We're kind of still in this post-COVID normalization. And so I think it's like getting out of that plus having more certainty about pricing, which is innovation number one. And what the price will be is probably number two is what will matter for the sector. And then maybe you mentioned innovation. The interesting part of the biotech and pharmaceutical industry is that it's the discovery. It's kind of like our industry. The discovery is not a scale business. You might have thought 25 years ago, the big companies are going to have this huge advantage on discovering drugs and has proven not to be the case.

15:48small, innovative companies have more of a chance because they're so nimble at discovering new science as big companies. And now science is happening at big companies and small companies, but when you think about the scale of capital that big companies have, it's amazing that half the drugs are discovered originally at small companies. And that's the exciting part of it. If you can find one of those gems that is going to have a new drug that's going to transform more medicine and buy it at size at an early stage, there's a significant way of adding value to clients. So as a biopharma specialist, you're always looking ahead.

16:26Yeah. What medical advances do you expect to see over the next five to 10 years? And what are you most excited about in those medical advances? So first of all, when you think about where there's the most medical need, still in cancer, right? We've made so much progress in cancer, but I do think we are still in the early stages of understanding what we described as cancer. You describe it as lung cancer. You describe it as breast cancer, but it's really 10 or 12 different kinds of drivers of that cancer. And the more biologists can figure out what drives those, the more we're going to be able to have very specific drugs.

17:03So that would be number one, that I think we've made so much progress, but there's still so much more left to do. I think the other part of it is this whole using the immune system to target cancers. That started about 10 to 15 years ago, and we're going to get better and better at targeting the immune system to help fight off the cancers as well. So that whole aspect is just really still very early days. And then I go back to my Immunex example. We've gone from like in, let's say, 1991 when I started where all inflammatory diseases were treated with steroids, to now in 2026, where you have maybe six or seven categories of anti-inflammatories.

17:47And I think we'll continue to break those down. There are so many anti-inflammatory diseases that are driven by different aspects of the very complicated and complex immune system. And if you know anyone who's been treated with some of these drugs for RA or for skin diseases, multiple sclerosis, rheumatoid arthritis. Their lives are so much better today, and their lives will be better in the future because the medicines will be more targeted, easier to use, longer durations. So that aspect, I think those two are probably where the complexity of it is still not understood well enough that we're going to have a lot of innovation.

18:26So I want to talk a little bit about the macro. And you mentioned that you moved to London, right around the global financial crisis. But your investment career spans multiple crises, bubbles, market regimes. So what period do you think taught you the most? Yeah. So I will say I'm going to talk about maybe three periods, maybe 99, 2000, the global financial crisis. And maybe it's not a crisis, but a real regime change in pharmaceutical and healthcare investing. So the first one, and this is where I think Ed being my mentor was really, I learned so much during the 99, 2000, and I would call it, it was the internet bubble, but it was also the biotech bubble.

19:09And we had, if you look at the biotech stocks, they were just on a tear and not based on real sound fundamentals. And I remember alerting from him just being very disciplined about selling, about giving money back to clients and our dedicated strategies about raising a ton of cash and just the ability to stick with a thesis that you knew was right. And so that year then we were very well prepared then when the biotech bubble burst. So I was just so young and to learn that so young about these big regime changes and that's when you really have to protect your client's capital. So that would be number one.

19:52I would say in 08, I didn't navigate 08 well, but 09 was one of my best years. And so when I think about the two of them, but the reason 08 was hard is because so many companies had issued convertible debt. And that was kind of a new thing in the 2000s. And I never had to worry about debt. The companies had net cash. And so actually then when the global financial crisis came and anyone with debt, as you remember, was under significant pressure. And so we had some companies that had this convertible debt that actually then really reduced their cash position and navigating that. I learned a lot in that and actually had so many conversations with biotech companies because they didn't know how to deal with it either.

20:36Right. So I remember talking to some of my big holdings. I'm like, you've got to reduce spending. You've got to let this work. So I remember the conversations. It wasn't about the stocks were down. It was about how do you help your companies that also hadn't really navigated having leverage. And they thought it was equity. And then it became debt. So that part of it really was quite interesting. And then, so I think you just learn these lessons over time. And then you go from like, healthcare started working again in 2010 until 2015. 2015 was like an amazing year. And I remember then sitting in our morning meeting every day and really realizing healthcare was going up and energy was going down.

21:19and really recognizing that it wasn't health care. It was this transition. It wasn't that health care was fundamentally outperforming to that level. It was that energy was going, like something was happening in the energy markets and they were looking for a place to put the money. And so just recognizing that this is probably a time to reduce our exposures and go up in cash. And if you were in just one bubble and didn't recognize the environment around you, we might not have been able to position that. So just learning lessons. There's these big regime changes that happen. Yeah, I know those are three interesting perspectives.

21:58So in today's market, inflation is a top concern. And in fact, Wellington's research team predicted inflationary growth at the start of this year. Have you changed your outlook and where are you looking for opportunities? Yeah, so actually our team really changed their view on inflation five years ago. And they recognize, they probably emphasized it at the beginning of this year, but they really recognize back to these structural changes. That's where Wellington's research is so good, is like when you have people that study inflation for 30 years or, and they really recognize that these structural changes are happening.

22:35And so I think for our macro investors who did recognize that trend, it was the change in globalization, the change in structural expectations and volatility of inflation, that it was going to be stickier than the market expected. So I think we still believe we're in that regime. I think the big unanswered question is, will AI be inflationary and will it eventually be deflationary? I think those are some of the things our team is really thinking about. Will AI be a deflationary factor eventually, even though now it's probably an inflationary factor? I want to get back to AI because we can't have a conversation without talking about it.

23:14But you mentioned globalization. So I wanted to get your perspective on in what ways portfolio management has changed in this era of heightened geopolitical tension. So in the era of heightened geopolitical tension, I think it's another factor that impacts portfolios. I'm not sure it's drastically changed portfolio, like how you think about portfolio management. The real change in portfolio management is two things. One would be clients, particularly since the global financial crisis, want a smoother ride. And so portfolio construction techniques has become a much bigger part of the portfolio management job.

23:53The second thing is that the markets, particularly the U.S., not everywhere, are much more concentrated. So how do you navigate a really concentrated benchmark? Is a portfolio construction change that is really impacting the art in the job of portfolio management? So those are two sort of structural things, one from the client side and one from the market structure side. And when I think about geopolitics, it's just part of the job, right? Like if you're any kind of investor, you need to understand what is going to impact prices. and sometimes it's very micro, which is where I thrive, and sometimes it's macro.

24:30We've already talked a little bit about the macro. But I'm going to give you a specific example of what I consider geopolitics now to be or similar to, an analogy. Back in 2008, President Obama was elected, and we might forget, with a 60 Senate majority. So it's really unheard of. And back at the same time, healthcare was the number one issue. So I didn't talk to a portfolio manager for a year at Wellington. They had no interest in the health care sector because the health care sector was potentially uninvestable if we went to a single payer health care system. And so during that year, I remember my colleague and I, we studied the Senate.

25:09We studied the Senate in Nebraska and Montana and moderate Republicans and moderate Democrats, really studied the moderate Democrats and would read everything about them because we had to figure out if they were going to get 60 votes. At some point, we made a bet that they would not and that we would not have a single payer system. And then as the year went on, they actually, you know, obviously Obamacare is not a single payer system. But that was the role for a year, like really studying down to the macro, could this happen? I would have thought it would have been spent spending all that time.

25:47So it's just an example of this time we like our investors really have to understand geopolitics and how it could impact the asset prices of their specific industry and sector or country. And so that's part of the job. Yeah, fascinating. All right. So back to AI. So how are you thinking about AI within Wellington? So AI is a topic we talk about quite a bit. And I would say a few years ago, like many CEOs, we decided to have an AI task force. And I remember the advice at the time. There's 50 use cases. Start with a few. And the interesting thing is that those use cases are well in practice now.

26:28The most important one for us is using our, well, what is our own IP? And so now we have all of our company meeting notes, sort of mandatory. Anyone who goes to see a company goes into our data lake. And that is resulting in a lot of push, meaning the AI can say this is what's happened based on all the company meetings we've had in the past week or month and then also a pull for our investors. You can imagine like the treasure trove of data when you think about 20 ,000 company meetings all over the world. So that was like a very important use case. And so now the question from here is we're taking it up a level.