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“I joined Standish right out of Harvard Business School in 1962. I think the firm was managing about $300 million then, with about 25 people. From the start, I had this feeling that bonds were for me: Fixed income sits at this junction of economics and finance, and I feel I am good at that type of synthesis. I love this field. And what interesting people I have come across. Marty Leibowitz is a hero: He has stayed fresh through the decades. There’s no denying Bill Gross’ talent, nor Jack Bogle’s business acumen. The shrewdest investor? Maybe Jack Meyer: I spent 21 years on the Harvard board, so I got to know Jack well. You have to respect David Swenson, and a personal favorite of mine is Jeremy Grantham, who is both courageous and disciplined. The real titan is Paul Volcker: He saved our bacon.
What’s changed for the worse in the 50 years I’ve been in the business? Time horizons have got progressively shorter. That’s partly our fault as asset managers, and partly our clients and the consultants being too quick with their trigger fingers. From our side, somehow the business came too much to be about asset gathering and not enough about investing: Many firms put aside the fiduciary nature of our calling. Certainly our customers are much more sophisticated these days. A better question might be whether they are wiser. In my view, sophistication and short-term horizons combine to ill-effect. Should asset owners look for boutiques or giant asset management complexes when it comes to their fixed-income solutions? The answer lies in which type of entity best puts the client first, and develops a culture that stresses that. I think great fixed-income firms need sufficient scale and discipline. Capital and stability also matter: We served our clients well in the first decades of Standish when we were a private firm, but not a single client knew or cared about our balance sheet. Now they do, and your capital structure needs to come to terms with that. I like the BNY Mellon model: Boutiques with their own culture, but with some of the advantages of scale.
From an investment standpoint, these are difficult times. There has never been a time when there has been this scale of unfunded liabilities in relation to the size of the global economy. The liabilities we see are simply unsupportable. In my view, this is the wrong time to take risk. I don’t know how you achieve an 8% return in this market unless price-to-earnings ratios keep constantly rising, and that seems an unsupportable proposition. There are not high rates of return to be found in the markets right now: My advice is rather than ratchet up your appetite for risk, ratchet down your expectations of return. Ah, but of course, I’ve been wrong often before. We all have. At Standish, we’ve had some institutional clients for 25 years. That’s what you strive for. Of course, you’re not always going to do well in every period, but you can add consistent and small increments of value. Sometimes we failed to do that: In the late 1990s, we were overly focused on credit, and our performance was poor. Of course, in this business it’s not about being right—it is what the markets think is right. People have thought for 15 years that the Euro is unsustainable. Well, perhaps they’ll be right soon enough, but that hasn’t served them well this past decade.
Why am I still working? Look, this investment business is one of the great careers. How can I not feel blessed? The intellectual challenge is part of it. But I also felt strongly that I had a sense of obligation to BNY Mellon—in the sale, we delivered less to them than we had promised. I had an obligation to help turn the firm around, and we have done so. That matters to me greatly.”