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At this time of immense geopolitical turmoil and human struggle and suffering, I want to begin by expressing my sincere wish for brighter days in 2024. World events are having widespread effects on clients, companies, and countries we work with, and I hope all are managing through these unsettling times. I want to offer a note of optimism as well, as I believe we are also living in an age of unparalleled innovation and human ingenuity that will help us overcome the challenges ahead. As an investor in the health care sector for more than 30 years, I’ve seen firsthand how determination, ambition, and purpose can drive enormous change, and it gives me great confidence in the future.
At Wellington, we seek to be a source of stability and confidence — a partner to be relied on by our clients as they navigate a volatile market and economic environment. In this year’s letter, I’d like to put that environment in perspective, as it marks a dramatic departure from the relative stability of the post-GFC era, and share some thoughts on how we’re focusing our firm to support clients’ needs.
In 2023, financial markets certainly bounced back from the historically challenging results of the year before, when both equities and bonds struggled. At the same time, we seem to be in an environment where investment “rules of thumb” about how economies and markets behave are open to question. The recession forecasted by so many hasn’t arrived, at least not yet. This era of extreme market concentration, marked by the dominance of the “Magnificent Seven,” has continued to defy expectations. And advances in artificial intelligence (AI) have quickly begun to fundamentally alter how many view the future of the global economy and to disrupt a wide range of industries.
Meanwhile, 2023 brought more evidence of regime change, with members of our Macro team continuing to argue that with the end of the “easy money” era and the unwinding of globalization, we should expect shorter and more frequent economic cycles, structurally higher and more volatile inflation, and greater differentiation in countries’ policy decisions and economic outcomes. As a result, we expect uncertainty about the economic outlook, including around interest rates and markets, to remain a dominant theme this year, underpinning decisions many asset owners will make about the deployment of capital and the positioning of portfolios.
Amid so much change, asset owners should look for portfolio managers who adopt and follow a strong philosophy and process, but who are also unafraid to ask tough questions, listen to alternate viewpoints, and challenge their assumptions when necessary. Asset owners should also expect their managers to be prepared for evolving economic and industry conditions with the research depth and breadth that such a complex world requires.
It is in times like these that our collaborative culture truly shines, helping our investment professionals stress test their ideas and identify opportunities for clients, as they’re doing today in areas like fixed income, private markets, emerging market equities, and many specialized thematic strategies. Our teams are engaged in vigorous discussion and debate about the topics that are driving markets, economic policy, and portfolio decisions, including key geopolitical risks, the outlook for interest rates, the economic impact of AI, the global implications of the energy transition, and the outlook for China, to name a few.
In this environment, I see great excitement among our investment professionals in the potential of active management. Separating the winners from the losers and identifying equity and bond issuers with strong fundamentals versus those with more challenged balance sheets or outlooks is at the core of what we seek to do — the benefit of Wellington’s robust investment in deep research across all major asset classes.
There are also benefits to scale in our industry, and as one of the largest active managers globally, we continue to add capabilities to better serve our clients, including in areas such as private equity, private credit, and market-neutral long/short strategies, as well as talent that helps us manage solutions across assets, themes, and factors. We’re also building out capabilities that support our investors, including investor development, where we have a dedicated and growing team using data and evidence-based analysis and content to help drive skills development at all levels of our platform.
Given the rapid pace of technological advancements, we founded an internal network this past year to focus on new and emerging technologies and to explore how best to apply capabilities to create value for our clients. We have long used AI technologies to enrich our investment process, including applying natural language processing to find patterns in earnings reports, job listings, and more. Now, generative AI promises to help supplement and advance our existing efforts while also enabling new efficiencies across a broad range of firm functions such as portfolio risk analysis and trading.
We continue to believe that understanding the financial effects of sustainability risks and opportunities on issuers is a critical capability for the future of active asset management. Our industry is facing a complex global regulatory environment and I think we are well positioned to navigate it given our investment-led approach.
We also believe that a diverse workforce, equitable opportunities for all colleagues to reach their full potential, and an inclusive culture are critical to attracting and retaining the talent we need to drive excellence for our clients. Like others in our industry, we are working to address skill building and advancement, and to measure qualitative and quantitative outputs and outcomes.
From the outset, the founders of our firm ensured there was a clear and unwavering focus on putting clients first. It’s in the mantra that still guides every decision we make: Client, firm, self. To ensure we’re positioned to be an effective partner to clients, we seek out feedback and observations on what we are doing well and where we could do better. As many of you know, we conducted a client survey in 2023, and I’d like to thank all of you who took the time to share your thoughts. We were deeply gratified by the trust you expressed in our firm and people. We were also motivated by many of your suggestions, including a desire to hear more proactively from us, especially during times of market stress and organizational change, and to see ongoing improvement in our reporting and our digital experience. We are a continuous feedback culture and will be actively working to address your input.
We were also excited to see more clients in person again in 2023. While in-person meeting activity is not back to pre-pandemic levels, as many find benefits in virtual engagement, we have greatly enjoyed and appreciated the chance to meet clients face to face around the world. I certainly traveled more in 2023, and found clients eager to discuss the macro outlook, as well as areas where Wellington had differentiated ideas. I look forward to more of these valuable discussions in 2024.
As we head into the new year, I want to leave you with this thought: Ours is a talent business, and I have tremendous confidence in the people we have working on behalf of you and your beneficiaries — the 3,000+ colleagues who power our culture and our investment and client service capabilities.
On behalf of all of them, I thank you for the privilege of managing your assets and wish you the very best for the year ahead.
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