The Exchanges

Q From a high level, and we'll get into the asset management side, certainly in the asset management business, there's always this tension between scale of a business And at least presumed quality of the product. When you're trying to do that much for these clients, how do you figure out that you can provide all that much service for a growing number of clients?

A Well, it's a tricky balance. Now, technology, I use the word digital now, is a key part of it in 2020. So there are things that digital and technology allow you to do that you couldn't have afford to do 10 or 20 years ago. So we actually think that we'll be better than the competition on the way we interface with our clients, our advisors, from a technology standpoint. So the client applications that We create for our private wealth clients that they have on their phone. The private wealth advisor platform that we create for them to interface with their clients. We have our own technology team, most of them in Hamilton, New Jersey, working to knit all this together for clients and for private wealth advisors, but we also partner with firms for some of the underlying functions that go into this, and those partnerships weren't capable of being in place 10 or 15 years ago. So technology makes it easier To scale some of the things that need to be scaled if you're going to offer this set of services. The other thing, and this is part of our growth strategy, is you do need to put a reasonable footprint out there, because we're delivering some really high quality services, like our manager selection platform. We have a group of individuals who screen investment options for clients in all sorts of categories, and we're looking for the best. We do a tremendous amount of diligence, and t…

AI assessment note: “technology makes it easier To scale some of the things that need to be scaled”

Q From the breadth of what you've seen on the asset management side, and I imagine you've got a range of different clients with different needs, how do you think about just the investment part of that equation on behalf of your clients?

A The nice thing about it, we call it Rockefeller Asset Management. It has a long history here in the former Rock & Co. and now through Rockefeller Capital Management. So there's a lot of tenure on the investment professional side. It's a lot of bottom-up fundamental research. It's a long-term orientation, so the turnover in the portfolios is lower. We like all that. It fits with the trusted advisor. We're trying to find companies and opportunities to generate alpha through the cycle, We're leaning against momentum trades. All of that comes together in a way that fits with the cultural ethos here and the way we work with clients. We also have tried to take advantage of where we can lead from an intellectual capital standpoint. So we were one of the first in ESG. Now the family helped a lot here because the Rockefeller family cares a lot about the environment, what's happening to it, sustainable investing. The Rockefeller family office had a mission Fund in the seventies, literally, with family money that was here. We have a 27 year track record in ESG investing here. We kicked off eight years ago a climate solutions fund, which is a pure play vehicle focused only on climate and companies that are focused on climate remediation, small and mid cap. So a lot of people are running around on that now, but ours has an eight year track record. The focus on ESG as a differentiator Is the…

AI assessment note: “It's a lot of bottom-up fundamental research. It's a long-term orientation”

Q And how does the team do that work?

A There's a lot of detailed, fundamental research company by company, and in fact, we do a fair amount of engagement with companies as well. So Amazon's a good example. We've been working with them on their environmental footprint. We just had some clients and prospects on a visit that they set up, and we talk to them regularly at Amazon in Spain looking at some of their fulfillment plants. And how they do things. And the reason we do that is because we want to work with companies to help them get on a better track, identify companies that we want to invest in because they're trying to do the right things and we think they're making progress. And also we're showing our clients and prospects we're at the heart of the intellectual capital around investing in ESG and where the industry is going.

AI assessment note: “There's a lot of detailed, fundamental research company by company, and in fact”

Q When you're out winning new business, What are the aspects of your proposition that matter most to those prospective clients? Is it sort of asset management performance? Is it the service of just the, the bill paying, the handholding, and just excellence there? Is it advisory? Like, what do you see as what people care most about?

A One of the things that matters a lot, which makes the client feel comfortable, is the environment we're creating here for the private wealth advisors to thrive within. Because the reason that so many people want to come work here, and that we are hiring some of these great teams, not some, really been very fortunate to bring in best in class teams across the country, is because we've set up a model that allows them to do what they do best for those clients easier day in and day out. It's not a big firm with a lot of bureaucracy and questions around, well, why are you doing this? And sorry, you can't do this for your client because We would have to do it for four million other clients, and we can't allow that for four million clients. We're never going to have four million clients here. Our clients are all in this segment, high net worth and ultra high net worth. So I'd say to the clients, this team is going to thrive here. They're going to be able to do what they do really well for you. You know, we still have regulators. We have to make sure we do the right things by, and there are rules here, but it's a more entrepreneurial approach. Culture and place for them, and they thrive here. So that's a big part of it. And then you add on what you were describing. This business started with investment. We're adding a lot of other things to investment. Those family office services, the…

AI assessment note: “One of the things that matters a lot, which makes the client feel comfortable”

Q And how about managing those people once you have them?

A That's a great follow-on, because I believe this, and not everybody practices it, but Ernest Shackleton had a great quote, and he did an amazing job keeping his men alive. Remember, he was the one going to the South Pole, and the ship got stuck in the ice, and he got them all out of there. And he said, optimism is true moral courage. And if you're going to lead these people, I believe in positive motivation and positive stimulation. So when I first started really acting in a leadership role at Merrill, it was leading investment bankers. I pretty quickly figured out that positive motivation and trying to get people to stretch in a constructive way was the best way to extend the enterprise. And I remember talking to one of the people who worked with me in leadership, who was more of a, quote, producer, a good banker, and less focused on positive motivation, and would listen to the Shackleton quote and probably want to debate it. And I said, The challenge that you're creating, and as we're trying to lead this group, because we were kind of co-heads, the good person goes into your office, and then they come out, and they feel beaten down, and is there a hope here? We can't be here just for the superstars. We have to take people who are very good, or good, and make them feel great, and make them feel the sense of purpose. Otherwise, the collective good isn't going to move forward. S…

AI assessment note: “I pretty quickly figured out that positive motivation and trying to get people to stretch”

Q So let's go to the financial crisis. There's been plenty written. How about your own experience and some of the things you remember most and took away from those treacherous times?

A One of the things that I learned during that time, this is clearly a life lesson, and I talked to my children who are 23, 21, and 19 about this. There were times during that period where you're wondering, where did everybody go, and how do we end up in this position? Because when I was made co-president in 2007, I was the youngest president, I think, in the history of Merrill Lynch. And by the time we were in the middle of this crisis, a lot of leadership change had occurred around us. Things were happening that virtually nobody in the industry had predicted, and the decisions were now in and around my hands. And What I say as a life lesson is things haven't been actually around that long, and if you're waiting to look around the room and say, well, who's got the answer here? Oftentimes, there isn't going to be somebody saying, this is the answer. You're the president of a ninety-four-year-old company with a spectacular brand name. There are 65,000 employees. You've been raising capital with companies that you respect, and you don't want that capital to be at risk, because we raised a lot of capital At Merrill in the oh, seven, oh, eight time frame, and I was on the phone with friends that were the CEOs of mutual fund companies and asset management companies saying, we're coming to market. We'd love to have you participate in the offering. You want to do well by those people, a…

AI assessment note: “One of the things that I learned during that time, this is clearly a life lesson”

Q and wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now back to the show. So what are the factors that your team has used to decide kind of what types of companies are kind of good companies in this ESG product?

A We actually have a pretty comprehensive framework across different industries of materiality factors that we're looking at to differentiate who's doing well today from an ESG standpoint. And then as importantly, who we think is improving and going to do well going forward. So we call this materiality mapping, and it's industry by industry, and the set of factors is tailored to different industries, and it really cuts across the ESG space, so it can be everything from labor relations and employee turnover to environmental footprint, the impact of climate change on that footprint, maybe the impact of climate change on whether they're going to adapt their business model to changing technology and preferences around that, So there's a broad cross-section of material factors, and it comes down to when you're evaluating whether you invest in a company or not, historically, it was more balance sheet income statement and the kinds of investing that we've been doing for decades. We're now adding in a comprehensive look at ESG today and ESG trend line going forward to decide which companies we think will outperform, because in the final analysis, in all of our ESG strategies, The goal is alpha creation in addition to the mandate.

AI assessment note: “materiality mapping, and it's industry by industry... labor relations and employee turnover”

Q So within that breadth and story, when you're going to a new client, what are those three things that you would have taken out as a consultant back in your Booz Allen days and says, okay, here's what we're focused on for you?

A One of the things I start with is independent, trusted advice and lack of conflicts. We are a private firm. This is our whole strategy. High-end individuals and families on the private wealth and strategic advisory side, pension, endowment, foundation, ultra-high net worth individuals on the asset management side. We're not trying to be something else. So for example, on the strategic advisory side, we just worked on behalf of the family, the chairman, and the board of Bombardier. On the sale of their transportation business to Alstom, and also the sale of their commercial aircraft to Airbus and the unwinding of that. We're brought into situations like this, and this happens all the time across our families because they already know us and they can trust us on the private wealth side. We're not worried about necessarily an investment banking relationship or fee. We're trying to make sure the right thing happens because we're going to continue to have a relationship with them on a long-term basis. Investment banking Typically is more of a one-off, and then something might happen several years later. So we really do lead with trusted, non-conflicted advice, high-quality individuals. We're as good as anybody anywhere, and because of the trust and the lack of the conflict, bring us in, and we'll really help you. That's the first thing we go with.

AI assessment note: “One of the things I start with is independent, trusted advice and lack of conflicts.”

Q And what was it that led you to make a change after that experience?

A I thoroughly enjoyed the work and the exposure and the coming up with solutions to problems and presenting it to the clients, but then they went to do it or not, and I started wanting to do it, and I wanted to be closer to being in control of it. So I got a call from Merrill Lynch, which at the time was really starting to expand its wings beyond just retail into being a broad-based financial services company and, and a big name. In in in, in in in,, in, in in in in in, in in in in in in,, in, in,, in in in in in in in in in in in in, in It was a couple of years, but that's really the path that I ended up on, and I got significant exposure to asset management. I started covering them from an investment banking standpoint, and also wealth management, because the asset management companies were generating a lot of their assets through retail system, and Merrill had the biggest and one of the best. So those two businesses became a cornerstone businesses for me in terms of understanding and having clients and operating them. They're very important to Merrill Lynch as a principal. So the knowledge about financial institutions And the career path I took through financial institutions, eventually I moved over to the management side, and I ran U.S. financial institutions, global, then I became head of investment banking, and then co-head of the institutional business, but that path was …

AI assessment note: “I started wanting to do it, and I wanted to be closer to being in control”

Q What were the biggest lessons you took away from that initial experience?

A Well, it was a couple things, and I don't know that I took this lesson at the time, but over the course of my career, kind of lead up, and Steve Jobs famously said, I think to his group coming out of an offsite, we're going to have three follow-ups, not nine, not 20. And one of the things I saw early on was all of these plans that would get put in place by the executive or the leadership team, and it was too much, and you're part of helping them craft it, and you're thinking they're not going to go get a lot of this done, and in fact, they don't. So one of the things I had started to learn early on was be very focused on what you're going to try to accomplish within a company. The strategy has to be tight and clear and communicated constantly, and you have to keep going back at it. Because I saw a lot of situations where That wasn't the case. I'm not saying that I had that clearly in my head at the time, but the seeds of that came together over the course of my career, where later on, you, you see, this is why some companies are very successful, and this is why many aren't.

AI assessment note: “one of the things I had started to learn early on was be very focused”

Q How do your clients integrate sort of that ESG as part of their asset allocation?

A On the institutional side, They're stepping it up a lot now. You're as close to that as anybody. You're wired in this and the people you talk to. So it's coming quickly on the institutional side. In Europe, there's tremendous momentum, but we're seeing it start to come here. So there, we're just responding and dealing with the classic institutional sales process, and our clients there are asking for it. And we've actually continued to progress how we do it and how we think about it. We're focused on ESG improvers as opposed to just ESG leaders. Because we think if a company is making a lot of progress on ESG metrics that we look at, that is often a leading indicator for alpha creation going forward. You're getting them early on metrics that matter now. On the family office side and on the individual side, it tends to come down to family still, although it's becoming a bit of a groundswell as the younger generation comes up. So, you know, I say, I fancy myself a bit of an expert on millennials and Generation Z for only one reason. I have three in and around my house all the time, and they have their friends from college. Those generations are not going to let go of this. This is really coming in a big way. So we're starting to see that we have a next-gen advisory council here with some of the Younger Rockefellers and other clients who get together quarterly, and they talk about …

AI assessment note: “We're focused on ESG improvers as opposed to just ESG leaders.”

Q You mentioned a sort of a four AM run to start. What's the structure of your day look like?

A I like early, and I like mornings, which again, the three children tease me about, but I'm up early all the time. I like to exercise before the day starts, so I'm up by five, sometimes earlier, rarely later. Even on the weekends, I like to get up early, then I might take it a little slower and have coffee with the dogs, and then, ah, I bring a very organized approach to my professional life, so I don't forget that lesson that I learned, even though I didn't completely absorb it in the Booz Allen days. What are the things that are really important that I, as the leader, have to get done to move this forward? And what are the things that I've got great people doing, and I don't need to get involved in that? So I structure my time efficiently, but every day I'm trying to think about what really matters and what doesn't so that I use the day really well.

AI assessment note: “I like to exercise before the day starts, so I'm up by five”

Q Yeah, wow. I want to roll forward into sort of your move into private wealth, but I also noticed that after that period of time, after that B of A deal got done, you basically slept for a year. So you did have that gap, but what did you do in that period of time to kind of clear your head before you reengaged in the business?

A It's a fair observation, because I definitely, to walk you through the sequence, after we announced the sale to Bank of America, which I'll never forget, on September 15th, 2008, and it actually leaked late the night before that Sunday night. So after we announced that, we started to move down the path of integration, and I went to my 20 year Yale Law School reunion. And the dean at the time was a man named Harold Coe, and I saw him, and he was very candid. Like you just said, I slept through a year. He said, you look awful. You're drained. Why don't you take a break from that world and come up here and teach and write and clear your head? And I said, Harold, I appreciate that. And he said, it's a dean's appointment. It's just you and me. It's all yours. And I said, I can't do that. I just sold this firm, and I was instrumental in doing it. I've got to see this forward. And then over the next month or two, I realized that it was going to be quite a difficult transition for Merrill and for me personally, because it was a very different culture at Bank America. And look, they bought it. It was a fifty billion dollar transaction in the middle of that time. Merrill Lynch has went on to thrive. The 65,000 people kept their jobs. Lots of positives. I'm not picking on them, but it was going to be a very different firm. And I just decided this is going to be too difficult to transition…

AI assessment note: “to walk you through the sequence, after we announced the sale to Bank of America”

Q What have been the biggest challenges you faced in your time here?

A One of the challenges was buying a, was effectively a family office and transitioning that to really a growth company, and you have the people that are here when we bought the company, and then you're hiring a lot of people, and you want everybody to feel like they're part of it. So we've worked hard on that, and getting everybody feeling like they're connected to the culture, they know what the culture is. We care a lot about our website and what the website says, the mission statement of the firm, the principles, One of our principles is excellence. I've been on that my whole life. One of my favorite quotations, Vince Lombardi, who said, perfection is not attainable, but if we chase it, we might just catch excellence. You got to get everybody to buy into that. So if somebody was at a firm that was maybe a different place before, that's really good. We want them to feel like they're part of that. We've worked hard on that in the first two years. So that was one of the early challenges. Another positive that I want to mention is our private equity partner is Viking through their private vehicle, and they've been great partners. They and I talked about doing something like this virtually from the first month or two I left Morgan Stanley. They understand where we're going. They're involved in strategy. They leave a lot of the day-to-day execution to us. That's their model. Our vi…

AI assessment note: “One of the challenges was buying a, was effectively a family office and transitioning”