#111: Jack Sommers: Culture, Principles, Focus, Always

0:05Jack Sommers:Welcome to the Insightful Investor Podcast, a weekly series that seeks to share industry, investment, and market insights. We define insights as concepts that are counterintuitive, widely misunderstood, or underappreciated. In other words, unique ideas that you probably won't hear elsewhere. I'm Alex Shahidi, the host of the podcast and co-CIO of Evoke Advisors, a leading investment advisory firm. Learn more about our show at insightfulinvestor.org.

0:38Jack Sommers:Today's guest is Jack Summers, co-founder and executive chair of Income Research and Management, also known as IR &M, a specialist fixed income firm managing approximately$131 billion as of the end of 2025. Today, we're going to explore Jack's origin story, building the firm with his father, the timeless principles that have guided IRNM's evolution, and how focus and culture have become their true differentiators. Thank you for joining us, Jack. Oh, thanks so much for having me, Alex. Really excited about this conversation. I am as well. Why don't we start with the origin story of your firm, which in my experience is a bit different from others.

1:17Yeah, I started with my dad, John. I was actually John growing up. I had to change my name when we started working together. he said he got his name first so i picked jack that's fair that's very fair our transition but my dad my dad left college and and eventually found his way to the fixed income sales and trading business and as a young man he was pretty successful there doing well financially leading some people but as he looked at the long-term career path he didn't really like what he saw He was really looking for something that had more client concern and more of a career path. And a lot of his customers that he was selling bonds to kind of fit that bill for him.

2:02So he left at a relatively early age, 35-ish, and found a job at Putnam Investments to be their first dedicated fixed income portfolio manager. Most of the big asset management firms then were still managing balanced accounts. So that was a little bit of a unique position for him. And he was there for 10 years. He had a disagreement with the co-leader of the business, decided to part ways. And at the time, I had worked at Morgan Stanley for a couple of years and was in business school. And when I was at Morgan Stanley, I had spent time both on the investment banking side of fixed income, helping companies refinance their debt, and then also on the fixed income sales and trading floor.

2:52And I fell in love with bonds. My dad came to me and said, I want to start my own thing. I don't want to go work for another big company. He had a couple of options to go to bigger firms, but felt like he could bring along a few clients and really wanted to get away from the bureaucracy of a larger organization. So I love bonds. I knew I wanted to be in asset management. Love my dad. And away we went.

3:17Jack Sommers:So when you look back, which parts of the original vision have stood the test of time and which did you deliberately break and rebuild as markets, client needs and technology evolved? We started as really a corporate bond specialist, and obviously corporate bond selection takes a lot of credit work, but we also had a real specialization in analyzing structures like putable bonds and high coupon bonds versus low coupon bonds, off-the-run bonds. So we were looking for places where there were good premiums for either a lack of understanding or maybe a little less liquidity. And we're adding value through that security selection.

4:02And over time, that really had to broaden out. We were a 10-person firm after a couple of years without much under management. And it became clear that we needed to meet the broader needs of the potential client base. Compliance and risk management and technology have obviously just continued to grow in importance. And we really thought we needed to grow to compete. So we started to evolve our business on a number of fronts.

4:34Jack Sommers:And this was in the mid-80s, right? So we started the firm in 87. So it would have been kind of early 90s that this was going on. And then are there any parts of the vision of the organization and what you wanted to focus on that you feel has evolved through time or has most of it stuck to its original design? Yeah. My dad came in with a pretty strong held belief that we shouldn't make macro bets. I think he had a tough track record and lost a lot of his hair trying to guess interest. I shouldn't say guess. make good judgments about where future interest rates were going to go, which thousands of brilliant people do.

5:21And most of them are not right more than 50 % of the time. So that was really a premise. And I think he always believed that there were a lot of inefficiencies in the fixed income market because of the way the indices are composed and because of the different goals that the clients like foreign institutions and insurance companies might have from total return type investors. So he saw an opportunity to exploit those types of inefficiencies. We didn't really have a broad enough skill set to do that on a broader basis, which is what our potential clients wanted. And over time, expanding that skill set into the securitized market, sticking to our focus on US dollar fixed income, but expanding that to the securitized market, having a lot more options to choose from was really a critical undertaking.

6:17And then obviously, as we added smarter people than us to do those jobs and started to figure out that making sure they're working well together was a huge part of the equation, we really started to drive towards putting in some structure, building out HR systems that fit the firm and help us all work well together.

6:40Jack Sommers:You said something that I think is interesting to dig in on a little bit. You talked about how the fixed income market is inefficient in some ways. Do you feel like it has become more efficient with time, less efficient with time, or is it roughly similarly inefficient? Well, it's grown substantially. Financially, obviously, we have a lot of nations with significant debt outstanding, and we have a lot of very large companies now that, while maybe less leverage than they used to be, still have a ton of leverage. The securitized markets have really driven a lot of issuance, and there's the whole private side that has kind of replaced the banking system.

7:24So there's certainly a lot going on. In our eyes, the efficiency of the market really ebbs and flows. So in times when there's a lot of risk taking, the efficiency of the market really increases. And then when there's a crisis, when there are four sellers, that's when the real opportunities appear. I think that still exists, although we haven't seen it for a while. It's starting to feel a little bit like 2006, 2007 with corporate spreads, securitized spreads very tight, obviously very high equity market valuation. So risk tolerance feels very high right now. Opportunity set is not as great as we like it to be.

8:07And at those times, we tend to be a little bit closer to our benchmark and overall risk, but we'll try to add value on the security selection side, which is still doable. but not with the same alpha results that happens in more dislocated markets.

8:24Jack Sommers:I guess in some ways it's like a swinging pendulum. And you go from efficiency to inefficiency, and sometimes those swings could be violent as well. You said that a lot better and briefer than I did. Thank you. And I guess to make a distinction between what you just described and I summarized relative to making macro calls, you're just looking at the spreads and saying, are they tight? Are they not tight? Am I getting paid to take that extra risk as opposed to calling what the macro environment is going to look like in the future? Yes. Yep. And, you know, it's been a good way to do it. We think it can continue to be a good way to do it.

9:06And not taking those macro bets really gives our client a good understanding of what they're going to receive. So we really encourage our clients to pick the right duration benchmark to use and then expect returns on an absolute basis that are going to be better than that, but not substantially different.

9:27Jack Sommers:And when you say inefficiency, just to be clear, are you saying that maybe you can find bonds that have better yield with the same risk as other bonds or the other way, similar yield but less risk than other bonds? Yes to both. Yeah. And if that changes, then hopefully we can find the next most attractive bond. One of the things that I think differentiates us from our competitors is that we do concentrate our positions as a security selector. We think our 100 best ideas are better than the next 100 or the next 200. So when an idea becomes fairly priced, then oftentimes we will move into something else that we think is not fairly priced, underpriced.

10:14Jack Sommers:So going back to launching the firm in 1987, why build the firm on your own instead of joining an established platform? And what did independence empower you to say no to that ultimately helped shape the firm's identity? As you know, in the asset management business, there's been a lot of consolidation and a lot of people trying to encourage that. And we have been approached over the years, but it's really always been a hard no. I think we feel like we have a long-term, sustainable investment edge that with the right culture we can maintain. And the ability to be independent is a large portion or a big piece of why many clients hire us.

10:59So when you get hired for being independent, to lose that independence is in some ways breaching the integrity of trust with our clients. And that's not something I want to be thinking about on my deathbed. So we're sticking to our commitment to stay private. We think there are a lot of long-term advantages that come with being private. We can invest in the business when it's down. We're able to align our shareholders' interests with our clients and with each other. And we can really focus on building what we think is the right culture for a firm that does bottom-up security selection.

11:40Jack Sommers:One other concept that you briefly mentioned in the beginning that I think is worth highlighting is one of the reasons your father decided to go out on his own and co-found the firm with you is he was looking for a client-centered organization. Would you talk through that a little bit more? Because you would think that every firm should be client-centered. It's the clients paying the bills. But at least in my experience, that's not always the case. Yeah. So if I look back to one of the things that my dad really passed on to me, it was a love of building great portfolios, but also a love of having happy clients.

12:20And happy clients are built in many different ways because the clients oftentimes are very different. But generally, it's built through an agreement of trust as to what's going to happen with few surprises. Or if there are surprises, you pick up the phone right away. And over time, you need to deliver on the promise that active management is going to be better than passive management. And then on top of that, and particularly in the early days from some of my dad's previous relationships, I just got to see the wonderful personal joy that he took in some of the clients that he had done a great job for, that they were all pleased with him.

13:03And I've been fortunate that I've had some of that in my career too. And some of those client relationship or really important relationships as I look back on my life. I'm still looking forward in my life, by the way.

13:17Jack Sommers:I'm not just looking backwards. You can look both ways. It's okay. So when you look back over the last almost 40 years of working together, what do you feel is the most important lesson you learned from your father? And also, with your different lens, what lesson do you think he ultimately adopted from you? On the investing side, love your client, don't make interest rate bets, stay focused on security selection, as we talked about some of that. I think if I look at, he was always very curious and trusting. And it's a great combination. One of the things that we pride our organization on now is being candid, but doing it kindly.

14:04And my dad has always been a kind man, and he's also been a curious man. And I think that combination is something that I've tried to model as I've been lucky enough to become a leader at our organization. We had some different ideas along the way. So the evolution of our team, I think I probably pushed more than he would have naturally. We added significant expertise in the securitized space. We created a much deeper analyst team. And I think he would have been okay not doing that and trying to keep it a smaller business. I'm glad we did it in hindsight because we do feel like we're in a sweet spot.

14:49there's a lot of things you need to do on the technology front, the compliance front, the business operations front that some scale really helps with. And yet we're small enough that, you know, I know everybody's name at the firm and we say hi to each other in the hallways and we still have that small firm feel. So I think that sweet spot was important to both of us. I for the business if we were a bit bigger and deeper than we were. I think the other big thing is, and this is maybe more of an evolution in how businesses run today, because I'm not sure this is unique, but it was an evolution from my dad's previous experience in his career, just really focusing on culture.

15:38And that takes HR systems, it takes great communication internally, takes great hiring. And some of that was important in my dad's earlier days, but it certainly didn't have the emphasis that we now put on it at IR &M today.

15:55Jack Sommers:As a firm, you focus on being great at one thing rather than broadening the lineup just to grow your assets, which seems to be more common, at least in my experience. What risks did that entail and how has specialization become a competitive advantage? The biggest risk is if you don't do your job while you don't have a business. And that's acknowledged. I think the flip side of that is it creates great focus and it makes it clear what needs to happen for the business to be successful for our clients and for ourselves. I mean, the other great thing about specializing is we feel like we really know our stuff and the securities we operate within and the systems that we use, how we're able to customize those systems to our specific, basically one investment process firm versus a larger firm, which has to spread those attentions over lots of different products, lots of different people, all kinds of different client types.

17:00So that focus comes to bring some advantages in many different ways. And, you know, I think the challenges of that focus, a lot of them are on the technology side. Obviously, we have a lot of big competitors who are able to create an edge through technology development. And I would say we are not going to be that firm, but we do work hard to adapt the technology to what we do to add value. And the other challenging thing is that it's sometimes harder to attract client people because there are periods in time when we've been behind benchmarks and it all tends to happen at the same time. Whereas if you're at a firm with many multiple products, a client person may have one product that's performing well and another product that's not.

18:04So the result of that, I think, has been that we attract client people who really like bonds and understand bonds. And while our client team is knowledgeable in bonds, our clients still want to see the investors. But I do think we have a unique combination of knowledgeable client people on the fixed income front and a pretty friendly investment team to the outside client world.

18:32Jack Sommers:Which is very important because from a business standpoint, in some ways, it's riskier to have a narrow set of strategies that you implement rather than a broad range where something is probably going to be outperforming, other things may be underperforming. And so the specialization might give you a competitive advantage because you're more focused on a certain type of strategy, but from a business standpoint, could be riskier. Yeah, absolutely. And going back to the private ownership, obviously, if we were part of a much bigger organization, I think there would be much more pressure to proliferate products or get AUM in at any cost or make our products more generic so they were more scalable and take away some of the customization we do.

19:22So that's another advantage of being a private firm is we can say no to that.

19:25Jack Sommers:And that goes back to our original conversation of what it really means to be client-centered. Because at least from what I've seen, just about every firm says client first, but their actions may not support that narrative. Yeah. And I talked about my dad a little bit and that history, and it is paramount. I don't think it's a differentiator for us. And this is actually another thing. And this is semantics, but something my dad and I disagreed on. I think he finally gave in. But he's like, no, we absolutely have to say the client comes first. And, you know, we had a similar discussion to what we're having right now.

20:08I'm like, yes, but what makes us different? And I really think it's our people. Because if our people come first, then the clients will benefit from that. And there's a pyramid that we use that many would put the client at the top. And I've actually talked my colleagues into it. I think they believe it, that really you put the firm at the top because if the firm's performing in a valued center way and creating healthy teams, which would be the middle part of that pyramid, and taking care of its people and making it a great place to work, that's the environment you really can control. You can't control what your clients are going to decide to do or not do.

20:54So by focusing on what we think we are most in control of, that's been part of our evaluated equation.

21:02Jack Sommers:So would you walk us through some daily habits that put what you just described in practice? Sure. So I think transparency is huge. And obviously, the bigger the firm is, the more important that becomes. We hope that all of our 200 plus colleagues are aspiring to be owners someday. And the best way to become an owner is to act like one. So the culture is built on some structures that may not be uncommon. And the real value added, I think, within those structures is how you execute on them. So just as an example on the HR front, when we have a new employee join, we assign mentors, we walk them through a bunch of trainings, we walk them around and introduce them to their team, they have lunch with the management, you know, a bunch of things that I'm sure other firms do as well.

22:02We really make sure that we are all involved in that and embrace it. And just to maybe talk about what may be our special sauce there, the two things that come to mind that I think stand out among asset management firms is the commitment to having an ongoing litany of community and cultural events that people can go to and do things outside of their day jobs together and really come together as an IRNM community. And that gets culminated in a week of giving that we do where people suggest philanthropies for our corporate charitable trust, and they actually dictate through a voting mechanism how those dollars get allocated.

22:51So that's the culmination of a whole year of people coming together to help out our broader community. The other thing is to make it fun. And part of the fun quotient for us has been swag, which sounds pathetic. And we started out with a crummy old T-shirt. And all of a sudden, people started wearing our stuff to our office. And now when we have new hires come in, we hand them a nice IR &M tote bag with a quarter zip in it. We give swag to our clients with IR &M on it. We have a catchy phrase called bond with us that I think captures the culture of who we're trying to be well. So, you know, some of those little things are key.

23:41The other thing I would say is just bringing the whole firm together every Monday is a really nice way to remember that we're all in this together. So every morning at 830, we have a huddle and we'll have a variety of different speakers talking about different parts of the business. and it's just great to see everybody come together, chat, listen to what's happening at the huddle that week, talk about it on the way out, go back and start working together.

24:09Jack Sommers:I want to ask you something a bit more personal. You come across as notably balanced in how you think and communicate. What does balance mean to you in practice? oof uh so i i may have fooled you no i i um i'd like to think i'm balanced now i was not balanced when we started the business i was uh you know i was 25 when i joined the firm i had a great role model in my dad i love bonds i love the business and i would say i was not as good a leader or collaborator as I should have been. And I had a real wake up call when I first met an executive coach and kind of she was in to our firm to talk about how to make our culture better.

25:02And she, after the hour meeting, I said, Hey, that was a great meeting, wasn't it? And she said, Well, why'd you think it was great? I don't know. We covered a bunch of issues. And she said, you have a problem you talk the entire time and you know just that one comment and i started working with her after that because it is uh it can be lonely at the top and i was probably shooting messengers along the way and so i really i think it helped me personally and professionally to to get some help on that front and it's a work in process i still i still have this natural trigger that I might not be as balanced as I should be, but I usually recognize that before I do anything stupid.

25:51So it's been a journey and it's, I think one of the things I'm proudest of is that our organization has really embraced that broadly.