The Exchanges

Q So in this Global research effort cross sector. What are the structures in place in the firms to bring together the collaboration and teamwork into practice? Because it's one thing to say we're going to collaborate. It's another thing when you have people in different time zones and, and covering different things and different objectives. What are the structures of the firm that make that work?

A Well, first of all, besides it being, you know, a very strong philosophical driver, it's been fascinating for me to watch because I've been able to watch it is just to see the extension of a culture going global. And obviously we have our own local cultures and all our different offices for sure. But the fact that you can really unite on a culture globally is impressive to me. And I've watched it be built and I've watched it happen. And one of the things though, the first driver Is to ensure that we incent the behavior. So we changed compensation decades ago, first and foremost, to say that we are a team and that's the way we're going to incent people to operate. So you're not just going to get paid on your results. That's going to be a huge factor for sure, but there's going to be a very large, at least a third of your compensation that is centered around how well you work on the team, how much you share information, How much you seek out information. How much collaboration you do, you do have. How much you participate in research meetings. And then we have a three 60 peer review process twice a year. And so that's not just the nicest investor that gets great scores. It really isn't. It's deeply ingrained in the teams in terms of who's operating the best in terms of that cross team collaboration. And adding the most value and impact. So the incentives are there. The philosophy…

AI assessment note: “at least a third of your compensation that is centered around how well you work”

Q When you're talking to that one client that's the set of intermediaries, how do you describe what being long-term means for you?

A It comes in the whole package. You can't just be long-term in your portfolios. It's how you manage the business. It's how you manage your talent. Like when we hire people, we think about, we want you, what MFS stands for is not just simply Massachusetts Financial Services, but my final stop. We want people here for the long haul because we think actually that's the way to run the business the best and to Develop investment excellence with everybody that we bring onto the team. But when we have to translate what long-term means, Is we really do spend more and more time, especially today, what a full market cycle is. And most people know it, but the measurements that the industry anchors around are usually half a full market cycle. Anywhere between seven and 10 years is a full market cycle. So if you're really going to hold us accountable against beating a benchmark that actually, by the way, is not a fiduciary and doesn't care what you own or doesn't care the price you pay. That's what you hire us to do. And so in order for us to really commit the capital long enough for the value to be created, we see that happening over a full market cycle. And that's why we're very, very clear about that. Unfortunately, I think the pressure in the industry has bred a lot of short-termism. And right now, and in the past five to 10 years, part of our distinctive message in the market is the fac…

AI assessment note: “when we have to translate what long-term means, Is we really do spend more and more time”

Q Was there an example that vividly sticks in your mind of a decision that was putting the client first where it just wasn't so obvious that that was the right thing to do?

A Well, I think probably the biggest one was about almost 20 years ago, and I was taking over the institutional business, and so I had a lot to learn. And you're dealing with large institutions all over the world, but we made the decision to close a product that was receiving lots of flow. And I, at the time, was running the business, and it was about building the business, and growing the business, and really getting presence and scale all over the world. And the portfolio management team and our management team says we're going to close the product. And to me, that was the greatest thing we did. I knew it was going to shut off the spigot. I knew it was going to slow down growth overnight, but I was so proud about translating why we were doing that, because there was no other reason we were doing that as just to protect the performance of the existing shareholders. And it's a simple one, but boy, To be behind tough decisions and then be able to explain that to clients, I think only reinforced your best example of how you're putting them first.

AI assessment note: “we made the decision to close a product that was receiving lots of flow.”

Q I'd love to hear in this moniker of creating value responsibly to break that up into creating value, and then we could talk about responsibly. On the creating value side, you know, you've discussed duration. You just touched a little bit on fundamental research. What is the ethos of MFS in terms of the research process and the set of beliefs that lead to long-term outperformance?

A Yeah. It all comes down to the idea that we know what we own with other people's money. So if you kind of back that up and sort of pull that apart, first you have to have a, you really have to have invested in a global research platform that has people all over the world based in markets that can see things you couldn't see from another office or you couldn't necessarily know from another location. Then what you have to do is ensure that those investors around the world are operating as one team. That there is a tremendous amount of trust, collaboration, teamwork. We all talk about collaboration and teamwork a lot in the industry. You have to make that the number one priority in managing the people. That if it's about you, you're in the wrong place. This has to be about the one team, the whole, about the client, about the idea that we are getting to the best investment idea For our clients' portfolios. And in order to do that, we think we need diverse thinking from all regions in the world to compare and contrast and understand the data and really beat up and debate the scenarios of the future of forecasting what's going to happen with any of these businesses, but also to understand them intensely well at every single level you can imagine. And that's where we build our conviction in that hub of that global research team. The other aspect that we learned and we did this years a…

AI assessment note: “It all comes down to the idea that we know what we own with other people's money.”

Q How have you thought about the decision making of whether to expand into alternatives?

A When you're on the management committee and you're thinking about long-term strategy and strategic response to change and demands, we're constantly talking about what we should be doing, but also what we shouldn't be doing. And alternatives has been on our conversation list for at least 15 years. So whether it was getting into the hedge fund business, whether it's even thinking about private equity, even putting private equity inside our portfolios today, we still come back to the end investor. The intermediaries might love it because it might be a great product that could gain some traction, but it really still comes back to not spreading ourselves too thin and to ensure that we really believe that the end investor is going to benefit in our products with an alternative asset class. We have expanded over the years. We've got global real estate. We've got global infrastructure. We've got Strategies like that, that were very comfortable, especially from a bottom-up research perspective. It's more some of the other areas that I think we feel would stretch us probably too thin in terms of the excellence that we expect in doing it in the liquid markets.

AI assessment note: “comes back to not spreading ourselves too thin and to ensure that we really believe”

Q I'd love to ask On this demise of the ESG label, under this lens of investing for long-term responsibility, how do you filter in the E and the S? I think the G kind of takes care of itself. How does the team filter that into their investment decisions?

A Yeah, I mean, the first premise is the fact that if you're holding a security, not just for price discovery or sort of a trading strategy, you're really focused on owning a company for the essence of its business, and you're doing it not in a short period of time, three to five, five to 10. Many of our managers are like, they want to hold the company for a long time. That in itself It tells you that you have to care about a lot of investment risks of that underlining business. So when you think of where we are in the physical state and the materiality of climate change, not just to energy companies, not to coal companies, every single business in the world is dealing with pressure on climate change one way or another. We see it in our own business. We see it in our parent company, Sun Life. How we have to change our business. So that applies to every single company we hold. Now, some of it's much more material to an underlying business and how it's going to impact them in the short term, the medium term, and the long term. But even the pressure from the regulators to respond to climate change is changing public companies, period. So as a long term investor, we have to implement that process Of talking to the companies about this investment risk that we see as being material to their business, or at a minimum, need to evaluate whether it is material or not. And the same thing wi…

AI assessment note: “we have to implement that process Of talking to the companies about this investment risk”

Q What are some of the ways on those latter two points on the packaging product and pricing and engagement with clients that you see evolving so that you can address the changing needs of the industry?

A Yeah, we've been investing in a lot of new dynamics of the engagement with clients, and really trying to understand deeply how they want to engage, and what do they need. Somebody said, the fundamental truth about business is that your customers will always change. The question you need to ask yourself is, what do you want your customers to become? And so when we ask that To ourselves is we want to help them become better investors. We want to help them become better advisors. And so as we step into answering that question, it's how do we get them the best information, the best knowledge, the best insights to understand not only the decisions they have to make in portfolio allocation, But also to understand what we're doing on their behalf. And so bringing them closer and closer to our process and our partnership, and so that that transparency is there in their ability to not only understand what we own on their behalf and their client's behalf, but then also be able to Align in understanding why we're taking a long-term view. And so whether it's showing up with content that helps tell that story, whether it's digital content, whether it's interaction on the website and what they're looking for, whether it's personalization of the things that they're worried about and being able to respond to where they're at, it's developing all of that as a new engagement model versus Sort of…

AI assessment note: “whether it's digital content, whether it's interaction on the website”

Q As you're looking out over the next cycle, so say seven to 10 years in your parlance, what are the trends that are presenting the most exciting opportunities and the most pressing risks?

A The most exciting to me is that ESG will go away. It will not be an investment term in three years, and it has nothing to do with it not being super important. What the world is going to wake up to and is waking up to now is we are redefining what long-term active management is, and should be, and should always be. It's to understand and evaluate investment risks that are material to the underlying businesses that you own with other people's money. And you have to do that incredibly well. And so, for us, we hope this narrative, this political silliness around ESG, it just dies away, and people realize, oh, I need to really know what I own. I really need to engage with these businesses. I really need to commit capital longer to really create incredible value, not only for the end investors, but the entire capital market structure. To me, that's where I get the most passionate and excited about, because I think for us, that's what we, we are just in such a unique position to do that extraordinarily well. And then investors want you to engage. That's what we do. That's the heart and soul of engagement with companies to make those companies better in the future. And so I think we're at the cusp of really witnessing that, and I think we're also witnessing the limitations of passive capital. And I think that will evolve. It's not the passive goes away. I just think everybody's going …

AI assessment note: “The most exciting to me is that ESG will go away.”

Q What else needs to change in order to play a bigger game?

A Well, I think we're all working on certainly DEI. I think the whole idea of just continuing to bring more great minds into the industry that have diverse thoughts and are diverse candidates and come from diverse backgrounds. I think that in itself is going to be incredibly powerful to the next evolution of the industry. I think the idea of partnership, when we think about the investment chain between the end investor and the public company, We've all put a lot of pressure on wanting public companies and private companies to change and do better and transform and, and reduce their carbon footprint and have more diverse workforces. And it's all this pressure we want public companies to do while also generating returns. And that's why I say our behavior as an industry actually needs to realize we're the ones that influence a lot of that behavior. So how do we put that might to work in a way that makes our industry sustainable for the next hundred years? And other things that have to change, again, how are we packaging up investment research? I think there's a lot of talk about personalization, and I'm a little skeptical on that, because again, I'm not sure that's actually, it sounds good, and it sounds like it's about the customer. I'm not sure that's actually What the customer needs. I think it's a variation of it, but I think we have to make sure we don't commercialize it in a w…

AI assessment note: “Well, I think we're all working on certainly DEI.”

Q What are the biggest and most exciting risks you're looking to take from here on out?

A Challenging the industry to change, and that includes us. We're in the industry, too. I do think that this is such an incredible time. We have an industry, and our clients, and our intermediaries, and our trustees, and our boards have really, when you think about where the industry today, it's just, it's incredible. It's incredible. There's a million different numbers out there, a 130 trillion dollars of investable assets. And, and then there's this big intermediation of all of us that are overseeing these assets on behalf of, of investors. And so what excites me is that I like waking up to the idea that we have to keep walking into change. And what are the barriers? What are the structural barriers that has gotten it started to really get in the way Of our investment excellence in the industry. Our ability to be good stewards. And I have a huge soapbox on, I travel around the world talking about this all the time. The way we measure performance, it has to change. And some people say, well, that's self-serving as an active manager. No, it's not. Actually, if I don't talk about it, That's the most self-serving thing I can do, because I can show up with plenty of products at different times with alpha. I have no problem doing that. But that's part of the problem, is this idea that we're trying to get alpha all the time over shorter and shorter periods of time. And ultimately what…

AI assessment note: “Challenging the industry to change, and that includes us.”

Q a long time, the equities and fixed income products that you offered have just had a terrific run in spite of people thinking, well, equities are overvalued or interest rates have to go up. Now we're seeing maybe the beginning or certainly seeing a change in the pricing of those securities. How have you thought about the evolution of your business potentially beyond the traditional equity and fixed income products?

A Yeah, I mean, I think what we do gets more valuable. I think what we're seeing today is that obsessive growth at any cost is over. I think we're seeing the limitations of passive capital. I think we're seeing the limitations of short-term alpha. I think we're going to start to desperately realize how important liquidity is. And so, when you come back to then looking at our business and what we do, and when I say, you know, we create value responsibly, investors now want to know that you know what you own. They want to know that you're going to engage with the companies in a way to help them transform. Whether that's cybersecurity, environment, workforce equality, whatever it might be, all of these new demands Makes what we do as a long-term active manager more and more valuable. Because as you really think about how capital is going to be allocated in the future, it's changing. It's changing as we speak right now. And to me, that's actually what makes it the most exciting. And then as we think about it as us running our business is not only making sure that we don't spread ourselves too thin or that we're not trying to chase the The newest widget. I mean, I think we've done that really well, but that just like evolving our investment platform over the hundred years, we're continuing to evolve how we're going to get to the best investment ideas in more and different ways, whethe…

AI assessment note: “Makes what we do as a long-term active manager more and more valuable.”