#83 - Yie-Hsin Hung: Leadership, Innovation, Adaptability

0:05Welcome to the Insightful Investor Podcast, a weekly series that seeks to share industry, investment, 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.

0:38I'm excited to have Yi Xing Hong join us today. Yishin is the president and CEO of State Street Investment Management, known until very recently as State Street Global Advisors, the investment management arm of State Street Corporation. As the world's fourth largest asset manager, the firm manages over$4.6 trillion. Welcome to the show, Yishin. Thank you, Alex. It's great to be with you. Why don't we start with your background and your journey? Would you walk us through how your background in engineering led you to investment banking and ultimately to asset management? For sure. So I was one of those kids that was really good in math and science.

1:22And my father was an engineer also. And so it just seemed like a very natural choice as I was deciding what to study in college. And in over the summers when I had internships, I just found myself wondering more and more what the company's strategy was and sort of bigger picture thinking. And so when I had a decision in terms of pursuing a master's degree in engineering or going the MBA route, I decided to go ahead and get my MBA. And that's where I got introduced to the world of finance. There were so many people that were coming to school, going back to Wall Street. And so I thought I'd give that a go too.

2:02And it was really great fun. I focused on the real estate sector. I was able to bring some of my problem solving and engineering know-how, if you will, looking at structures and taxes and all of those things. But ultimately, it ended up being a sector that wasn't growing as fast. And so I had an opportunity to shift over into more of a technology role and then ultimately into the asset management side of Morgan Stanley at the time. And I just fell in love with the business. I thought the people in it were really very motivated to deliver great outcomes for investors. I love the pace of the capital markets.

2:44And then also bringing sort of a strategic lens into really growing the business, thinking about how do we deliver for more and more people. Do you feel that there is somewhat of a mindset shift from the black and white thinking of engineering to navigating the more nuanced gray aspects of asset management? Yeah, there definitely is. When you're an engineer, you think of there's got to be a right answer to this problem. And one of the things that I'm very grateful for for that education is that I actually love problems. regardless of the size and complexity, always feel like there's something to work through and an answer on the other side.

3:26You can though spend a lot of time in the gray because you can't quite figure out what the right answer is. Whereas in business, you operate almost always in the gray, right? There is no black or white. And in some respects, that's actually an easier environment to be in. But one which I think I really appreciated that there's nuances to every decision. There's not a perfect answer. But this desire to really get in, roll up our short sleeves and figure out what's the best solution going forward is something I really, truly enjoy. I've told some people this story, but I went to law school. And before that, I was a black and white thinker, like an engineer, like a scientist, mathematician.

4:08And the reason I went to law school wasn't to practice law. I never intended to is because they train you in the shades of gray. And what I found when I got there is people who are engineers, mathematicians had a hard time and history majors, philosophers had a much easier time. And it's just a very different way of thinking. I couldn't agree more. So how did your early experiences at Dean Witter, Morgan Stanley, New York Life, and now State Street shape your approach to business and investing? Yeah, so it's been a very interesting journey. I started out, as I mentioned to you, Dean Witter, Morgan Stanley, really focused on the investment banking side and then transitioned to asset management when I was at Morgan Stanley.

4:52And I would say the first part of my career was very much sort of a straight line, if you will. You kind of knew you come in as an associate. The next step is vice president on up and increasing responsibilities. But when I shifted over into a new role, which was the intersection between banking and technology, I found myself completely outside my comfort zone. There were so many acronyms being used. I didn't understand what anybody was saying. It probably took me a good six months to get my head wrapped around, okay, so what is this that we're all working on? And it was interesting because it became the first step of many steps.

5:30Every two to three years, I'd have a different responsibility or a different business area, different function, different companies, where it was the same thing, just stepping outside my knowledge base, yet being charged with trying to think through what the right strategy is. Where do we devote resources? How do we bring a team together to really accomplish all of that? And I think that mindset of sort of interest and willingness to just bring the right folks together, to be ambitious about what we're trying to accomplish, to leverage the strengths and knowledge of everyone on the team is something that I bring to what I do today.

6:12And I think it's very valuable because we live in a world where the pace of change is dramatic. The clients that we serve, their experiences don't only reside in financial services, they're broad-based. And so thinking through ways in which we can really reach those individuals in a way that resonates with them, and also to figure out what are the options and what's the best path forward. All of that sort of critical thinking, that strategy, that inclusive environment, something that's very much a part of how I lead today. Would you reflect on your brief experience at Bridgewater and the key lessons you took away from that pretty unique environment?

6:56Maybe to answer that question, When I think about leading a business, the key things that I really focus on a great deal is strategy, which I've talked a little bit about. Your right to win, where do you choose to compete? But it's just as much about talent and then culture. And I think it was at Bridgewater that I really became so much more aware of the importance of culture in an organization. because it is in effect the values that an organization holds especially dear. And it enables everyone within the organization to sort of make those everyday decisions because you're always trading off one thing for another.

7:37And so I would say that was probably the biggest takeaway for me. And I'm so much more conscious of it, whether it was at New York Life or now at State Street Investment Management. And how would you describe your journey in asset management? and the most important milestones for you along the way to your leadership position today? Yeah. So, I mean, I probably think about those junctures between the companies that I've really spent and devoted my career. And I think there are some parallels to what I was describing before in terms of my path and stepping into a new environment, thinking through and understanding why things are the way they are.

8:22Where are the ideas? Again, what's the culture today? What's the culture you want to have within the organization? Are folks really empowered and enabled to really be their best selves? And ultimately, for every organization, it's different, right? So also coming into a new organization with some level of humility to understand that maybe what worked before is not going to work again here, but being open-minded to those different approaches. I guess in some ways I'm talking about an adaptability, sort of a curiosity and a humility that I think is really important. But also for me, this is a business where you can't always play it safe.

9:09You have to be thinking forward for your clients. what is the next investment exposure in our case at State Street that we want to develop or what solutions set is really important. It's making sure that we're constantly testing ourselves, being willing to question, should we be doing something different from the way we've done it before? And to create that environment where people can try things out and knowing that upfront, not everything is going to be successful, but it's okay. It's okay to have that environment where there's a test and learn approach, but yet one in which people feel comfortable speaking up because it's better to have sort of a bias towards action, but then be really critical as to what's going well, what could be better, and then adjusting as an organization.

9:58So that's a little bit of a sort of resilient nature, I would say, that I've learned over time. And then lastly, it's almost coupling that sort of focus on what is and the reality of the situation and equally having ambition, their financial livelihood and ability to realize those ambitions they have for themselves. You highlighted the importance of critical feedback internally. I think that's so important because it's going to come one way or another. It can come externally or you can uncover it internally and resolve potentially some of those issues before the market brings it to the surface.

10:40I couldn't agree more. You're almost better if you can force the conversations internally because somewhere in the organization, that thought may have arisen. So being in a position where you can think about some of this in advance, you know, just puts you in a better position should, you know, another issue or a similar type of concern crops up later. And that goes to culture, what you described earlier, because if you don't have a culture of open communication and internal feedback, then a lot of times those issues may not surface. That's exactly right. Would you, for those who aren't familiar, would you share a brief history of State Street's investment management business and its evolution since it started almost 50 years ago in 1978?

11:28Sure. So we're almost 50 years old and we're a part of the broader State Street Corporation, which is one of the largest custody banks in the world. Our heritage has been in the institutional arena. And frankly, that is a big part of our business today, where we're managing significant custom index mandates and equities and fixed income for investors all around the world. With the launch of ETS, which I think coincided with State Street bringing to market the largest or the very first, if you will, the S &P 500 ETF. That has also been a very big part of our overall business. And so we think of ourselves as sort of a leading provider of innovative investment exposures, whether that's a very first ETF or having gold inside an ETF or now more recently private credit.

12:27That's a big part of our DNA. And then democratizing investing. So taking these big ideas that very large institutions have access to, and how do we bring that and make that available to everyday investors? And so I feel like that is very much who we are. I say the other thing is that, you know, despite our size and our real strengths in our areas of business, we also embrace partnership across the firm. So if we find there's an interesting avenue working with another asset manager that brings really great capabilities like a Bridgewater or a Galaxy. We want to partner together to bring that to market.

13:11And similarly, we really value the partnerships that we have with firms like yours that are really touching the end investor and working together to figure out how can we bring the best of what we have that helps you achieve your objectives and then the objectives you have from your clients. So you've enjoyed tremendous success as a leader. Are there personal qualities that you credit for your rise to leadership within the industry? I would say if I think back to my younger self, I would never have imagined my getting here. In part, I think about my upbringing. So my parents immigrated to the US and I'm the oldest of three girls.

13:56And, you know, there's that sort of typical American dream of investing in your children. You want them to do better than you as parents. And I've always felt like it was a tremendous opportunity that they gave me and a tremendous obligation to take advantage of every opportunity in front of me. Hard work was something that they were used to. I think I learned that from them. And so it's, if I were to really boil it down to a single word, it's really just resilience. This willingness, regardless of what I run up against, whether something doesn't go my way or I don't get the opportunity I expect to get, or I'm forced to do something that I didn't even envision I would be doing, but just being willing to stay in it, to get back up, dust myself off and just keep going.

14:48And I think that series of experiences were incredibly valuable to me as I ultimately had this kind of opportunity because I've been able to put myself into many different situations and figure my way out of it. And while I would say I don't necessarily suffer from overconfidence, if anything, the opposite. But over time, I have felt like, you know, if I, if I really persevere, again, make sure I've got the right people around the table together, we have a shared ambition and goal. It's amazing what a group of people, a determined group of people can accomplish. And so it's that sort of, I don't know, orientation of aiming high, realizing that not everything's going to work out, but knowing that with effort and determination, you can make progress and you can make a difference.

15:48One way that I've heard it described by other leaders is you're trying to get to the top of the mountain and there are many paths to get there and you don't know what the right path is. So part of it is being resilient and part of it is also being adaptable and realizing, you know, I took path A and now I realize that's the wrong path. I need to backtrack a little bit and take path B. And so adaptability is probably a big part of it as well. Yeah, I agree. And I think sometimes not being overly committed, right? Like in the sense of you try something, you don't continue trying at it if it's not working.

16:24You should learn from it. And you should say, maybe the right answer is taking a left turn rather than continuing to push in that same direction. You've had the opportunity to interact with many great leaders globally. Are there any specific attributes that you believe define exceptional leadership beyond what we've talked about so far? Yeah. So, I mean, look, I think having a real vision and an ambition and what I would say is a very unselfish vision and ambition, which means that it's a leader who really wants the best for the entire organization, for the clients that we serve. and a leader that inspires because I think in what you and I do and in so many different companies, yes, there is the IQ element of it.

17:15You know, what is it that we're doing and how hard can we work to get there? But also where leaders can tap into people's minds and their hearts, I think are ones that really inspire me. Are there any aspects of effective leadership that you feel are often overlooked or possibly counterintuitive? Oftentimes when we think about very successful leaders, they're the ones that are really very charming, very outgoing, seemingly to have had a life that just seems like a straight line going up. And I think that in many respects, as I've read about different leaders and their backgrounds, it's not necessarily the case, right?

17:58It's those that are really maybe more introspective than outwardly focused from that standpoint or ones that have had challenges along the way that are able to really think through, okay, given this setback, how do we take that to the next level? And then those that are really willing to listen and really think about and be a leader that wants to hear what is going well, but also what isn't going well so that they're in a position to really empower others as opposed to necessarily being out in front. You talked about the vision. Do you agree that the most important decisions are often the simplest once the North Star is clear, while complexity may lie one level down?

18:47I do. I think the North Star is incredibly important, right? So that really speaks to this shared set of goals and objectives. What are we really trying to accomplish? What I think is really important is not only establishing that at the top of the organization, but what does that translate into? Into specific goals and specific initiatives, and how do we measure whether we're making progress towards those? And having everyone in the organization feel like they have a set of goals and objectives and responsibilities that tie to what the firm is trying to accomplish. So if that effort results in a really clear North Star, but then that North Star felt everywhere throughout the organization, then I think you really are able to just power through a lot of complexity at whatever level in the organization.

19:40And that has a lot to do with the culture that you described earlier. I think that's right. And it does require, I think, in our organizations as they get larger, that people aren't just focused on their own specific goals, because oftentimes the big things that you're trying to accomplish require reaching out to lots of people in other parts of the organization or even outside the organization. So thinking about not only what you're trying to accomplish, but who are you working with to do that? And can you do that in a way that brings a lot of people together on that journey? So at this stage in your career, how do you define success, both professionally and personally?

20:21I think that in many respects, they're the same. You know, I think where I am today, having impact is probably the greatest motivation I have. And I think about that in different levels. I feel very fortunate to be in the role that I am. We have the opportunity to help millions of people around the world with what we do. That's incredibly motivating to me. And it's true in my personal life too, which is really trying to focus in on the areas where I can uniquely bring value, that it's meaningful, that it really makes a difference from both for myself, but obviously for everyone that I'm engaged with.

21:01What would you consider your superpower as a leader? I would say probably this ability to listen, to understand what are the critical things and connecting the dots. I think that just comes from having had so many different types of roles where really me paying attention to what people are saying, what are the things that are being said over again? What are those ideas that you might find work in one area, but then you think to stretch over and you realize actually, bring those two pieces together is what really will make the difference. So obviously State Street is a sizable global firm. How do you maintain and evolve company culture while scaling a large organization?

21:53Yeah, so it's not an easy thing. I think shifting a culture takes a lot of time. It's just like if each of us decide we wanted to adopt a new habit, just like they often will do in New Year's resolution. It takes lots of small steps and reinforcement. And I think that's really what the culture is about. It's reinforcing those attributes that when you see it, you want to recognize it. It's about the leadership that you bring in. They should be role models for the cultural attributes that you want. It should show up in the promotion process, the hiring process, the recognition process. So it's really thinking almost 360 about how to reinforce those sets of attributes.

22:41And for us, we've been really focused on moving swifter with a greater sense of agility, willingness to try and to innovate. And so recognizing that I'm asking people to take more chances, then I've got to create an environment where it's safe to take those chances, right? So thinking about what it is that, you know, folks have to give up in order to embrace something new. And again, I think it's all of these various tools that help you shape in that direction. And especially if the culture lines up with what you're trying to achieve as an organization, then it becomes, you know, more self-reinforcing.

23:24Yeah, it can be challenging when you're managing trillions to foster a culture of innovation and adaptability, but it seems like that's a core part of what your organization focuses on. Yeah, I think it's critical. At the end of the day, I think our clients expect more and more from us. And so we need to be in a position to be able to think ahead and create the space for all of that to happen. But ultimately, I'm looking to my leadership team, who's then looking to their leadership team and all of that, I think, has to be sort of reinforced all the way down the line. I wanted to ask you a few investment-related questions, if I may.

24:05So if we look at the basics and start at a very high level, the first principles of investing, I think of it as stay invested, be diversified, and focus on the long term. These are simple in theory, but challenging in practice. Why do you think so many investors struggle with these basics? Because I think in part, we're intellectual beings. So this is all very rational. And then we're emotional beings also, right? And when you look at the research around some of these biases that we inherently have, they tend to show up. Whether it's loss aversion, like you don't want to lose money, right? So that may cause someone to decide to sell a position when the market goes down, when And really, maybe the opposite should be true, which is if you like this company, you should be leaning more into it.

24:55And similarly, I think there's a confirmation bias. If you start to think, OK, I'm worried about where the market is going, and then you start to really focus in on everybody else or every article that suggests that you're right, it just sort of pushes you in that direction. So I think this is where having financial advice in a good portfolio, the principles of rebalancing, putting those sort of, I don't know if you want to say support mechanisms in place to sort of counter what you know to be true. So, you know, if we're sort of left to our own devices, having that discipline at points when you don't have the stress and making sure you've got those kind of safeguards in place.

25:44And I guess it always goes back to the core drivers of behavior, fear and greed. That's right. Those are very difficult to overcome, particularly at the extremes. Are there any additional core principles that you believe investors should embrace beyond the fundamentals? Yeah, look, I mean, I think those principles you outlined are the right ones. If I were to add one more, it's about, you know, not thinking that you can time the market. I think that has been proven time and time again, very, very hard to do. And so I think, you know, if there can be a mentality of just dollar cost averaging over time, you know, that may be one more thing I'd add.

26:28There is oftentimes, in my experience, selective memory. We remember the right calls and we conveniently forget the wrong calls. That's so true. So State Street's investment management is widely recognized for its innovation. You mentioned launching the first U.S. ETF back in 1993, a move that democratized investing by making markets more accessible. About a decade later, he introduced the first gold ETF, further broadening investor access. Today, while continuing to focus on these core capabilities, you've expanded into private markets and alternatives by partnering with established leaders like Apollo and Bridgewater that you mentioned earlier, rather than trying to build those things internally.

27:13Why is this approach important in today's investment landscape? I think it's a recognition of, you know, for us, what we do incredibly well, as I said, you know, index management, ETF management, cash, and then creating tailored solutions. We all have to make choices about, you know, where we can invest and where, you know, maybe we're just better off partnering with another firm that we consider best in class in what they do. And that's really how we view Apollo in the private credit arena or Bridgewater and the hedge fund arena. And I think that's proven pretty successful because in many respects, these are partnerships where we definitely see eye to eye.

27:59We think one plus one equals three. We bring the best of what we each have to offer. And it has enabled us to come to market on a much faster basis. I think these are all the decisions for those of us that are running businesses that we have to decide. What is it that you're uniquely really good at? Where are there opportunities for partnerships and different approaches? But always with the mindset of what are we trying to accomplish for our ultimate clients? And in our view, this partnership approach is one that has worked incredibly well for us. And I think you will continue to see us lean into it.

28:40And I suppose that goes back to critical self-reflection of the areas that you believe are where you have great expertise. And it goes back to the North Star of what's best for the client and then areas where you can add value by partnering rather than trying to recreate the wheel yourself. Yeah, that's so right. I agree with that. And so looking ahead, what is your outlook for the asset management industry? I'm very excited about the asset management industry. I think it's such a unique segment of the financial services arena. Same is true with wealth management too. The ability to make a difference in people's lives, I think, really creates unique purpose, which is just tremendous.

29:25And I also think that this is an industry that has been incredibly resourceful and creative over the course of time, very motivated by what makes sense ultimately for investors and for people who, you know, have worked and saved and really want to take care of their families or their retirement. So I feel like it's also an industry that attracts people that also align with that purpose, but, you know, really interested and curious and very focused on making a difference, learning about the markets, the pace and all of those pieces and bringing that value. And I think that's alongside sort of the emotional component too, which is connecting, you know, and helping individuals with all the expertise that we have.