- Geopolitical Strategist
Switzerland, Intermediary
ChangeThe views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk.
Episode notes
Head of Investment Research Mary Pryshlak joins host Thomas Mucha to discuss the evolution of research in the asset management industry amid shifting market, technological, and geopolitical environments.
Key topics:
- 1:40 – Career as a global industry analyst
- 3:00 – Differentiated investment research
- 5:15 – How research is evolving
- 6:50 – Industry-specific investment processes
- 8:30 – Investment outlook
- 11:00 – How deglobalization impacts research
- 14:30 – Collaboration examples: AI and the banking crisis
- 17:10 – Filtering out the noise
- 18:45 – Personal observations
Transcript
COLD OPEN (MARY PRYSHLAK): We are excited about the future. We think moving away from zero rates is a catalyst. We like the fact that there are perspectives that we’re going to have higher interest rates and higher inflation. That means that they’re gonna have big alpha pools, greater inefficiencies, more volatility, a return of cyclicality. I mean, this is an active investor’s dream.
THOMAS MUCHA: Today’s topic is investment research in a changing world. Now in the active management context, differentiated research is the key that unlocks the door to investment performance. Without integrated research, it’s much harder to beat a benchmark and generate alpha over time. Now of course the engine behind any good research is its people. So here to talk about the evolution of investment research, and the talent that drives it, is Wellingtons’ head of investment research, Mary Pryshlak. Mary, welcome to WellSaid.
MARY PRYSHLAK:Hi Thomas, thanks for having me.
THOMAS MUCHA: So, let’s start with some of your path here at Wellington. So like many people here at Wellington, your career has been non-linear, shifting and expanding over time. So tell us about your path here to your current role.
MARY PRYSHLAK:Sure. So before joining Wellington, I worked at several investment firms in Boston. And I had covered insurance for them. I was a generalist investor at those organizations. Coming to Wellington in 2004, I started as a global industry analyst, or GIA, covering insurance for us globally on the property casualty side. I really loved being a GIA, the idea that you could really focus on one industry, that I was really passionate about, which when combined with the fact that you’re the expert within the firm, and the face of Wellington to the companies that we’re investing in, it just created a pretty powerful model. I really feel like there’s no better investment role than being a GIA. So, most of my career at Wellington has been a global industry analyst. And there was a pivotal time when I was relocated in London, this is between 2014 and 2016, where I actually found myself leaning more and more into mentorship and developing talent. That was actually the first time where I saw myself spending more time helping and developing people. So I’ve had the privilege of leading our global investment research team since 2018. This is a cross-functional, multidisciplinary, fundamental research organization, with about 130 investment professionals who are directly managing over US$135 billion in assets.
THOMAS MUCHA: So what is this cross-functional position that you just mentioned, what has that taught you about the value of integrated research, and the unique perspectives that are necessary for the investment process?
MARY PRYSHLAK:Well, I think it’s pretty straightforward. An integrated approach is essential. What we are trying to do every day is build a mosaic of information. And you do this by connecting the relevant dots in a way that enables us to really anticipate what a company’s business trends will be before the market’s priced them in. So different perspectives are a core underpinning of this process.
THOMAS MUCHA: So, Mary, the largest team you lead is our equity research function. What in your view makes this team so distinctive?
MARY PRYSHLAK:Oh, that’s a good question. There’s a lot of things that make this team distinctive, but I’m just gonna highlight a few. First, and probably most importantly, it’s our people. Who we hire is critically important. We’re looking for individuals who really have a differentiated perspective, and that can add a unique dimension to how to think about this idea of building a mosaic. I’d say our people really are our secret sauce. I would also add that our GIAs spend the entirety of their career covering their industries. This is really distinctive. We actually built our model around the belief that history doesn’t repeat itself, but it rhymes. And we think experience of the team really gives us an edge in understanding the inefficiencies better than our peers. So I do think it’s our people, and the business model, and then third I would add our global industry analysts are more than just researchers. They’re actually investors who are managing over US$135 billion in assets for our clients. And this idea of managing money as part of a broad and diverse product platform, it’s really key to being able to retain the best talent in the world. And managing money hones how they think about and take risks, and that makes them better investors. The last thing I’ll add is being a part of Wellington’s collaborative ecosystem is a competitive advantage. So when you put it all together, it’s pretty powerful.
THOMAS MUCHA: Yeah, and I can attest to the collaboration. In my role, I’m talking to GIAs across the board, and every single one of them will have a slightly different perspective on the issues that I care about: China, Russia, Ukraine, all of these things. And it’s really helpful to get that plurality of views, and especially when it’s deeply rooted in expertise at the industry level.
MARY PRYSHLAK:Yeah, that’s great to hear. And I know that they benefit so much from your insights as well, so that really brings together the collaborative nature of Wellington and the power of bringing all these different perspectives to enable us to really do the best for our clients.
THOMAS MUCHA: So, we started this conversation by saying it’s a shifting market backdrop, a shifting geopolitical backdrop. So how are the skillsets required for successful investment research, how are they changing in this current climate?
MARY PRYSHLAK:Yeah, it’s a great question, and it’s actually one of the things that really attracted me to this leadership role. So I’ll just start by saying, the markets are always evolving. How you made money in the late 1990s was different from the post-GFC 2008 period. And that’s different from the post-pandemic period. So we have to always be evolving how we are thinking about and generating alpha in the markets. The two things that I believe are really distinctive about the future are both framed in the context of agility. So, both learning agility and data agility. And so what I mean by that is, part of what I just said, learning agility is this idea that you have to keep evolving how you’re thinking about and making money in the markets, cause they’re always evolving. And data agility is really about thinking creatively about the future, asking different types of questions that you can then go out into this world wide web of information, and pull in unique datasets that enable you to build your own dataset to give you an advantage. But you have to be able to think creatively. You have to have a team of individuals that can help you really explore all the information that’s available in the world, to then distill it down into, this is a part of my process, and it’s going to give me an edge in picking companies.
THOMAS MUCHA: So on that last point, you just said process. So we talk a lot at Wellington about having an investment philosophy, an investment process. How does that vary from analyst to analyst? I mean what’s the set of potential P&Ps here?
MARY PRYSHLAK:Very wide-ranging. I mean, we truly believe that there is no one way to win in the market. And from a global industry analyst perspective, it’s critically important that Tom Levering, who’s our energy investor, how he thinks about making money in energy is very different than how Jennifer Berg thinks about making money in financials, which should also be extremely different than how Eunhak Bae thinks about making money in semiconductors. So the range of philosophy and processes is wide. And that is on purpose, and by design, because we think that, if you’re an expert in a subsector, you should have a specifically curated philosophy and process that will enable you to generate alpha. So that is by design, and it’s wide-ranging.
THOMAS MUCHA: And each of those individuals need to communicate their insights to the broader firm.
MARY PRYSHLAK:They communicate their insights to the firm for sure, and because we are so collaborative, it is critically important that at critical junctures, each of our global industry analysts are communicating broadly about their beliefs, and what they’re seeing in the marketplace. We do, as global industry analysts, need to ensure that we are leading the conversation for these important sectors that we’re covering, and others that have knowledge on those sectors or experience in investing in them, we expect them to be providing their perspective as well, cause that’s the value of Wellington in the ecosystem. You bring together these diverse perspectives, that enable us each to connect our dots in our own way.
THOMAS MUCHA: So you mentioned earlier that you make money in the markets differently in every era. So let’s shift to the current moment for a minute in the markets, which are finally maybe after several years moving more independently of central bank machinations. So, Mary, when you look ahead, what might be the changing market environment, and what does this mean really for research-based investment approaches?
MARY PRYSHLAK:Well, let me start by saying, Thomas, that we are really excited about the markets. And in particular, what higher interest rates and more cyclicality means for active investors. As you noted, post the global financial crisis, we were in what I often describe as, in essence, a one-directional market, a market where quality is simply compounded, and anyone who needed capital was actually able to get it. Because central banks around the world anchored rates at or near zero. This kind of environment, while extremely helpful for market returns, actually created another kind of dysfunction. And so, I kind of like to use the biotech market in the last couple of years as the best example of this. Our team would often refer to what they were seeing in the biotech space as an inverted yield curve. Where those companies that were the least proven, had the least cashflow, or least proven path to drug discovery, actually had some of the highest multiples. Now this has unwound, but I like to use this as an example of some of the distortions that you have seen, after having a decade or more of interest rates, low and or at, or around zero. So another unintended consequence of that backdrop that you talked about, really has showed up in the narrowness of the market’s performance. So you can look at the average performance of the S&P 500 just over the last seven years, and it’s compounded at a healthy clip. It’s been a great investment. And that’s excellent, except for, if you look a little bit more deeply, you can see a small handful of stocks were really driving that index performance. So I like to highlight that, because as great as that was for passive investors, I think it’s very misleading around the health of the overall market. So now to your question, the future. We are excited about the future. We think moving away from zero rates is a catalyst. We like the fact that there are perspectives that we’re going to have higher interest rates and higher inflation. That means that they’re gonna have big alpha pools, greater inefficiencies, more volatility, a return of cyclicality. I mean, this is an active investor’s dream.
THOMAS MUCHA: So that’s a point that I often make in my own geopolitical observations. I completely agree that this world is creating more distortions, as you say. So let’s move on to my favorite topic here, the geopolitical environment. So, from your perspective, Mary how do you see rising geopolitical tensions influencing investment research? I mean how does that sort of come together in your mind?
MARY PRYSHLAK:Well, this is a topic that you do know a lot about and are an important input into how our global industry analysts are thinking. I guess I’d say, you know, the last four decades or so, the world has really only known globalization. I mean I don’t know if it’s two, three, four decades, it’s been a long time. And think about what that’s meant for corporate America. You know, in the quest for every company to grow, whether that’s top-line or margins, companies were really focused on finding efficiencies. And if you’re a manufacturing company, it’s likely that you could have sustainably improved margins by relocating our manufacturing to low-cost regions, think China. Post the pandemic and the uptick in trade tensions between the US and China, something you’ve spent a lot of time talking about and thinking about, we have seen evidence of rising nationalism globally. There’s an acute awareness post the pandemic around the resiliency of supply chains, or the lack thereof. So this has caused many companies to rethink their strategy. We have seen, in the US, more examples of companies reshoring. And then you think about technology, and what that means from a semiconductor and a chip perspective, there’s been a rising degree of importance in the US to make chips in the US. This is a really long-winded way of me saying, that understanding the geopolitical landscape is probably a more important and key input into how investors think about both the opportunities and risk for investment decisions. We’re fortunate that at Wellington, collaboration is a part of our DNA, whether it’s our GIAs working with our macro team, working with a geopolitical strategist like yourself, boutique PMs, all sharing perspectives and challenging each other really helps us understand how to think about and navigate these tensions, because I don’t think they’re going away anytime soon.
THOMAS MUCHA: Yeah, it’s part of the mosaic. But you put your finger on a fundamental point that I would like to underscore here, and that’s about globalization. I completely agree that there’s been a shift, particularly from the policymaker side, on how they’re thinking about globalization. And for the past two, three, four decades, it literally was US foreign policy to further integrate the global economy, because it was the belief in DC and elsewhere that this was beneficial to US economic and national security. That game is over, right, because of great power competition, new competitions with Russia, the war, et cetera, et cetera. So I’m firmly in the camp that this is a fundamental shift, driven by national security that’s bleeding through the policy environment, that is going to impact individual countries, industries, and companies along the way. So, fully agree that this is a disruptive environment. But when I hear “disruption,” I think differentiation, and I think, okay, this is the time for actively-managed strategies. And so putting that all together in a collaborative research environment like Wellington. I have a lot of negative messages from the geopolitical perspective, but that’s not necessarily the case when I think about the investment implications.
MARY PRYSHLAK:I totally agree with you. It’s an exciting time. It’s not an environment that many people have experience in navigating, and that’s what I think brings to bear the value of having an experienced team that’s working in this collaborative ecosystem.
THOMAS MUCHA: Couldn’t agree more. So, we’ve got a changing world, we’ve got changing markets, we’ve got changing technology. These things are gonna demand even more communication among investment research teams. So, what are the specific ways that you foster cooperation, and let’s say respectful debate, alongside risk-taking and contrarianism, especially in such a dynamic environment.
MARY PRYSHLAK:Well, at Wellington, you clearly know, but for our listeners, collaboration is not a nice-to-have, it is a need-to-have. We firmly believe that active debate and discussion is critical. It helps each investor build out their mosaic. While our GIAs are the engine of the firm and take the responsibility for leading the investment dialogue seriously, they are made better by having 30-plus PM teams on the equity side, 30 more on the fixed income side, multiple alts PMs, privates perspectives, really testing and challenging them on the assumptions that they’re making, the perspective that they have for the future of the industry. I mean it really does make us better. So there’s a lot of natural conversation that takes place day in and day out. When you do find yourself in a crisis, we have gotten pretty good at creating deliberate forums. So let me bring this to light. During the banking crisis earlier this year, our finance team led what we would call a bull-bear debate on really the future of the banking industry. So we were purposeful in bringing together differentiated thinkers. We didn’t want to have an hour that we were spending together where everybody was agreeing. The idea was, where could we be wrong in how we’re thinking about the future? And another key element that was required was data. It’s okay to debate qualitative perspectives, but where we have data that can help inform why we’re thinking the future will be different --
THOMAS MUCHA: Yeah, give you more confidence that you’re right.
MARY PRYSHLAK:Absolutely, it’s critical. So this is a kind of open forum that we do do often as a way to engage active debate. We did something similar around AI after ChatGPT was launched into the world and sent the semiconductor and megacap tech stocks flying. And here again, we were deliberate in trying to not only provide perspective on what was happening, but we wanted to bring forward really different viewpoints. So as I said, these are some of the formal approaches that we’ve taken as a way to encourage what you described as contrarianism, and keeping the conversation really dynamic. But that’s not all we do. The natural collisions that we have in the hallways before meetings, after meetings, before our morning meeting, after our morning meeting, they really provide a critical underpinning to this collaborative ecosystem that I think really does give our investors an edge in thinking about how they should be navigating the markets.
THOMAS MUCHA: I completely agree. And those specific forums, on the banking crisis, on AI that you mentioned, I thought were extremely helpful, from my perspective too. And I was able to offer geopolitical perspectives on some of them as well. And so, that adds to the broad nature of collaboration. But, in the spirit of respectful debate here, Mary, let me push back on something, or at least get your thought on something here. You know, we’ve got so much input. We’ve got so many different perspectives. So, is there a risk here of analysts having trouble filtering out all the noise, and actually coming to decisions with confidence? I mean, how do you push back against that?
MARY PRYSHLAK:Yeah, and I will say this idea of filtering out noise is probably one of the hardest parts of being a GIA. Information is ubiquitous. And many market participants focus on knowing everything about every company. There’s so much comfort in information. But it’s not information that drives companies and stock valuations. There’s usually one or two key things that matter. And if you can understand what those one or two things are, and then you have the deepest knowledge on those drivers, you will get incredible leverage in how to think about and filter the noise. It’s fascinating to watch when we have some of our earlier career investors join us, you just see, and this isn’t a criticism, it’s natural, you see this tendency to want to have a lot of information about a lot. And over time, as they refine their craft of fundamental analysis, they’re getting better and better at distilling what matters, what’s important, and what should they be focusing on. And that’s the beauty of having a role like a GIA be a career role.
THOMAS MUCHA: I found that to be the case personally too. You know, you start with a big universe. And then recently, I’m like I’m saying the same three things over and over and over. But those are the things that matter, and you have to get those points across. So that’s an interesting viewpoint.
MARY PRYSHLAK:A little repetition never hurts.
THOMAS MUCHA: So let’s end here, Mary, with a question of a more personal nature. And you know, what is the best piece of personal or professional advice you’ve gotten, and how do you apply that to your day-to-day job?
MARY PRYSHLAK:This might be unsatisfying. I do love these kinds of questions.
THOMAS MUCHA: The truth is never unsatisfying, by the way.
MARY PRYSHLAK:Well, I actually think it’s hard to boil all of the advice I’ve been given over the years down to what is the best, or the one piece. I’m a big believer that everyone I meet has an ability to shape who I am, so I’m always looking to learn from other people. If you did press me, and said no, you have to give me an answer, I’d go way back to the beginning. And I would have said that my mother always pushed me to dream big. She never wanted me to accept any limitations. So there were no limitations on what she believed I could achieve. She also reinforced in me two other, I think, really important characteristics. One is just the value of hard work, and I don’t just mean studying hard. I really mean real work around the house. I had to physically clean the windows, the windowsills. That instilled in me a real work ethic. And then the importance of building meaningful relationships. So if I think about those three elements, they really are a part of my core. That’s not to say that the mentors that I’ve had over the years haven’t been impactful, because I’ve gotten a treasure trove of advice, all of which I’ve taken in in some way and absorbed in my own way.
THOMAS MUCHA: All right, Mary, well thank you so much for that. Thanks for the time today. Thanks for your continuing leadership of what is the core piece of Wellington’s investment strategy. Once again, Wellington’s head of investment research, Mary Pryshlak. Thanks for joining us on WellSaid.
MARY PRYSHLAK:Thank you, Thomas.
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Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced September 2023.
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