The Future of Remote Work & Diversity in Asset Management

Michael Torrance:

Welcome to sustainability leaders. I'm Michael Torrance, chief sustainability officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment business practices and our world.

Speaker 2:

The views expressed here are those of the participants and not those of Bank of Montreal it's affiliates or subsidiaries.

Michael Torrance:

The 2021 Milken Institute Global Conference hosted a panel with top experts, including Kristi Mitchem, CEO of BMO global asset management. They discussed what makes the current environment so unprecedented from a market and ESG perspective.

Speaker 3:

Please welcome the panel on asset management, repositioning for the future moderated by Bloomberg Market's anchor Caroline Hyde.

Caroline Hyde:

Well, what a joy it is to be here in the flesh, surrounded by really thought leaders in the space to be here at the Milken event and to be sort of tackling what might not be deemed perhaps actually that much of a critical issue for people who want to make money out of uncertainty. But let's introduce our wonderful panel today because to my right, we do indeed have Gary Chropuvka. He is president of course of WorldQuant. 2007 was when WorldQuant of course was founded. So we're going go deep into the data, some 600 employees over there and we're talking automation, we're talking AI. I'm pleased to say, we've got next to my right Carter Lyons of course, chief business officer of Two Sigma. As well, we've got to my left Kristi Mitchem, CEO, BMO global asset management, $300 billion of assets under management there.

Caroline Hyde:

Joanna Welsh, she's next to our CRO, chief risk officer of Citadel. And I might add a champion power lifter if you didn't know already. And Neal Wilson, co-CEO, co-chief investment officer of EJF capital. So in talking alternative asset management, we're talking about what to do with data. We're talking about the impact of AI, but crucially also the impact of talent right now within this moment.

Caroline Hyde:

And I've got a little bit of a competitive nature as we all do in the audience and on set. And my co-anchor [Romaine 00:02:23] is currently interviewing on stage at the exact same moment. So we are going to make this far more fruitful, exciting, eye-opening, thought provoking conversation. Then I know that all of us can rise to the occasion. So let's talk a little bit about, well, this competitive space that we're in at the moment and indeed whether or not we've seen anything like this at the moment. I spend my day in, day out talking about on the precipice of global supply crisis, energy crisis, inflation upticking, the sheer quantity of cash coming into the market. We've never seen anything like it or have we? Is this ... and I'll start with you Joanna, an unprecedented moment?

Joanna:

So thanks for being here everybody, and it's a pleasure to be here my first conference. Look, in terms of unprecedented, if you take it literally without precedent, no. I mean, we have a precedent here in the U.S. in terms of borrowing or stimulus, there's certainly precedent. If we think about what's new or extra about the current period, I'd say a number of things. The scale of the borrowing, that is unprecedented. The timing, so highly likely that it's coincidence with a cyclical upswing, highly likely that it's coincident with the initiation of a new commodity super cycle. And also the context yields starting from all time lows.

Joanna:

And I think we'll probably get into some of the sort of social things today, but another important one is the context of an investing community by whom bonds have always been the things that protect your portfolio. They protect your equity investments. I'm a professional risk manager. They're not the things that are the danger in your portfolio I think. So I think that's perhaps an inflection point now, and then the last couple of things I would say is [inaudible 00:04:26] that for the first time is starting to talk about things like being worried about the social inequalities. They also now, they truly believe that they worked out the Phillips curve and it's flat. So there's a lot of ingredients in the mix. I think that that really on you, but look, I'm in risk and so what do you do about that?

Joanna:

We're not here to just pontificate about these things. So I think if you think about the past, talk about inflation five year, five year inflation. If I say to you do you think it's going to be a pre-2014 or a post-2014? Now we're going to have a valuable discussion. We can make a scenario about that. But if you talk about something else, for example, green energy and Germany likely being out of the coal business in a few years, past this prologue is very dangerous. You'll get a very kind of wrong answer there.

Caroline Hyde:

Many of us trying to find the data with which to analyze, to put scenarios, to fathom what we can look forward to. And, and of course then make efficient market decisions off the back of it. Gary, you're a man who obsesses about the data, data junkie. What are you reading at the moment in terms of is the data telling you we're at some inflection point across certain assets?

Gary:

Thank you very much for having me here. You said my name well too, so it's great, but data junkie, data fuel, data's something that we thrive on. We just heard probably 11 different ideas and things that are shaping what's going on in the world today. And as we think about it, there's this consumption, we're all sitting here, we're joking around the auditoriums around to try to get more and more data and information to try to have a view on what's going to happen next. And so, I think where we sit, there's so much amount of data, whether it's regulatory filings, or corporate filings or brokers distributing a lot of information, you have alternative data that's out there.

Gary:

And so trying to synthesize that and come up with a view, and information is something that we try to do you, and you very much diversify the amount of bets we make, which is critically important. Because there's not just one nugget, but millions and millions of nuggets of information that are here and out there in the world. And then I think the other key thing is when we look at all this data is the ability to adapt. And one of your first question was around that adaptability, and what you can do with data, and being investor or practitioners is something that's critical to success in terms of navigating, so with that.

Caroline Hyde:

[inaudible 00:07:10] are we seeing the right opportunities to set yourself apart, to make alpha at the moment? If we are on this juxtaposition, if we are seeing a wall of data that you can navigate some nuances in the market that people have completely different views on as to whether inflation is transitory or not, that let's not even debate what the word transitory means, but is this an area? Is this the time to outperform when you're Two Sigma and that's exactly what you're trying to demonstrate on the daily?

Carter:

Oh, sure. I think we would be remiss to say there's no such thing as a time to not outperform and we get paid to outperform. I think what Joanna said was is the situation we're in today without precedence. And my first instinct was yes, it is unprecedented, because it's the summation of all those different things that she was mentioning. Have we had inflation before? Yes. Have we had social unrest? Yes. Have we had supply shocks? Yes. Have we had them all at the same time? Have we had them all at the same time with a pandemic? no. So when we look at that and we're very similar to what Gary was talking about, we try to gather the data.

Carter:

So when I hear those things, I think of what data set can we use to incorporate that scenario into our decision making? And then it's adding different things up. It might be looking at 2014, it might be looking at the '80s. It might be looking at the '70s. It might be looking at different types of data. And when I hear something like transitory, I have no idea what that means. I know there are 70 ships [crosstalk 00:08:35] sitting outside the LA and Long Beach ports right now that's a scenario that we've never seen before. That's not going to be solved in weeks. That's going to be solved in months, maybe quarters.

Caroline Hyde:

Carter, how are you getting the data on like the amount of ships that are outside the port at the moment? Is it alternative data that is the most ripe for this moment?

Carter:

Well, I got that by reading Bloomberg this morning. So it's not exactly fancy, but I mean, there are alternative data sets that will look at shipping traffic. They'll look at the Singapore ports, ports in China, and they'll look at how much traffic is actually pulling out of that. I'd say that those satellite imagery that was fancy alternative data from maybe 10 or 15 years ago. A lot of that information is priced in very quickly now. It's not as differentiated as it once was, but it takes increasingly high or large investments in technology to be able to interpret that data. Because if everybody has it, well, then it's not differentiated. And then it goes back to your original question to me. It's isn't a source of potential out performance because it's already priced in. And our view is that information is being generated at far greater scale than it ever it's being priced in much more quickly, so it's harder to find those shorter term opportunities because that information isn't as valid or relevant as long as it once was.

Kristi:

I just [crosstalk 00:09:43] want to pick up maybe on Carter's point, because I think it is such an interesting one and it's so funny because my mind went exactly the same place as yours. Like maybe each singular theme that we're seeing in the marketplace isn't unique or unprecedented, but the combination of them is. I think a really great example of that is just really looking at employment data in the U.S., and it's sort of the and. I mean the labor force in the U.S. has obviously been shrinking for a long time. Right? So if you were to look back and sort of chart labor force trends, I mean the big thing that's been happening in the U.S. is that men have been falling out of the workforce force at unprecedented levels. So the number of underemployed men that could actively participate if you go back to 1930 was about 2%.

Kristi:

That was 6% in the '80s. It's now 11.5, 12%. So that's been something we've been seeing actually since 2000. So what's the and? The and there is that now women are opting out of the workforce. In fact, if you look at women's participation back to 2019, and you compare it to where it was the beginning of this year, it's fallen by 3%. And women's participation rate overall is the lowest that it's been in 30 years. So when you talk about I think precedence and what's unprecedented and how we kind of peel the onion as to what's transitory and what's structural, I think it is this and, yes and.

Caroline Hyde:

Neal, you find the sweet spot around regulatory change within this. I mean, what's been so fascinating about this crisis has been the reaction function of the fed becoming more nuanced. This isn't about just inflation anymore and interest rates. This is about the labor force. This is about inequality within the labor forces, about trying to think about participation rates. And then now people worrying we're going to have a policy mistake because, well, they're looking more at getting people back into work rather than perhaps a running hot of inflation. When you look at, from the regulatory perspective, are you looking more at what the administration might do about labor right now? Or is it more about what the fed is?

Neal:

Yeah. we look at investing to through the regulatory lens, as you mentioned, Caroline, but I think we are in unprecedented times, I think we are at sort of an inflection point. And why do I say that? Because when we look at the pandemic, it changed human behavior. Like we were talking before we got on stage, how do you get people back to work? How are people ... 30 million online accounts were open in the first 12 months of the pandemic. Behavior has changed, and so the government ... I'm not the original person to say this, but it's certainly, we're lucky we had the financial crisis, then the pandemic, because the government did know what to do. The fed knew what to do. The treasury knew what to do. They should be commended for their reaction, but you put $6 trillion into the system and you changed human behavior.

Neal:

So what does that mean? So we focus a lot on the banking system, which is kind of a macro player. This time, the banks were the transmission mechanism by which the government put my money in the hands of borrowers. The public, they stayed home. COVID creates a fear, but it also created acceleration of trends. Like I said, like online brokerage accounts, banking. So what we see as a fundamental change is if you're a bank and let's say you've had it in your family, small bank for generations, you now know you recognize that you're a horse and buggy, kind of business in a world where the iron horse is taking over. So what does that mean? That means you're consolidating and because you can't afford, you can't hire people that Two Sigma can hire or, or WorldQuant.

Neal:

You can't get programmers to work for you. You don't have the budget to do it. You have to combine, and then you have to also figure out a way to find a way to have solutions for enhancing your business. And that's going to be the certain tech companies, FinTech companies. And that's why you're seeing such an explosion in that space and us, for us as a business, that's why we've shifted so dramatically from the old horse and buggy banks. Even though that's an important area of our business, you got to move into the FinTech area, because that's where the trends are. That's where the hockey puck's going.

Caroline Hyde:

Talking of tech. There is a QR code, took a global pandemic for QR codes to suddenly become relevant it feels, QR code behind us. Look at it, open the app that it takes you to and ask some questions because it's all about audience participation in this realm as well. So please do make your voices heard and get questions asked to this wonderful panel. And I'm interested in sort of, as we see this FinTech revolution, you, yourselves, I mean your whole business has been about embracing technology, embracing the data, but also the talent within which to ensure that technology is used to the right kind of degree. And I'm interested as to whether you're seeing, Joanna, for example, when you're looking from a risk perspective, how much that sudden wall of data and the use of automation, AI positive for your job, negative?

Joanna:

So I don't know whether people here are aware of the Risk Center in Citadel or the big wall we have, if you're not going to the website, Citadel's website, I think it will give you a nice little virtual tour. But our multi-strategy fund, we have two businesses. I'm the CRO for both, but let's talk about the hedge fund. That's five businesses, they're very different, global fixed income, four equity businesses, a quant strategies business, credit, converts, commodities. How you bring all of those things into the tent and that's always been something that's very important for me. I don't want to talk to an investor and say, "This is the risk of our fund. Oh, but it excludes risk arm, and you can't really include that. And commodities doesn't fit so well." How we sort of bring all of these things in has always been a very core part of what we do and the understanding of it.

Joanna:

So I think we combine a fundamental understanding of each of the businesses, but it's really important to pull them all together. I would say one of the things, talking about financial technology, since I started at Citadel, one of the things I've been very passionate about is actually moving away from vendors, and really I want risk software that is designed by us, for us, built by us. But a big part of that is another decision we made during the pandemic, which is to be together in the office at all times. I listened to the CEO of Coinbase yesterday and she spoke with such a singular sense of purpose about their remote model. [inaudible 00:16:17] for us, it was very different. In 2008, I became a CRO for the first time.

Joanna:

It was a true battlefield promotion, but it was very formative for me to kind of be in that room and watch people, and Paul Tudor Jones, other senior PMs listened to what they were saying and how they were reacting. This time around, I felt that a lot of my junior staff missed out on that, but the senior people of Citadel, we decided to be together and that cross discussion, "Hey, what are you seeing in credit? What are you seeing in equities? Do you think there's a [inaudible 00:16:53] moment about to happen in bonds? Explain commodities to everybody in the room?" We had all of our heads of businesses and that was very transformational I think for us.

Caroline Hyde:

Kristi, I mean, you've spoken about this, this shift to some sort of flexibility, whether or not that's the right thing for each business or not, whether you were in house. I mean, I'm very pleased you were put on a tie, but I can't imagine the last time that you put on ties. We have shifted in the way in which we work, but certain businesses of course feel that they need to be within, to be next to each other. How have you felt at BMO?

Kristi:

Yeah. We were talking a little bit in the preamble to this conference that in some ways, if you kind of look at how people approach the pandemic, it was like either all in or all out of the office. And I think that was probably the easiest way to do it, right? So if everyone is out of the office, everyone is relying on remote means of communication. Then you actually get that kind of coalescing and sharing of ideas. It just happens in a virtual format, as opposed to being in the office.

Caroline Hyde:

And you found that efficient?

Kristi:

We found it efficient and we found it very effective. We had 100% of people out of the office, and manage money very effectively over the course of the transition period. But to me, that's not the hard question.

Kristi:

The hard question is how to hybrid, right? So when you begin to think about some people being in and some people being out, it raises all of these questions. And the word that I always think about is curating randomness. I thought so much about Joanna's comment there because at the end of the day, if I look back on my career and I think about maybe the most interesting things that I've done, or the most penetrating ideas that we've been able to put forward, they didn't happen in the context of a formalized setting or meeting. They happened because you were reacting in the moment to a client problem or a client issue, or because you happened to have a sidebar conversation with someone that you might not usually talk to that sort of passed by your cubicle. We're going to talk about diversity.

Kristi:

We're going to talk about flexibility I know a little bit later in this panel and I do want to put a pen there because I think it is [inaudible 00:18:50] important that we figure work life integration issues out. And we use some of our experience in COVID to do that. But I think our challenge here is going to be how do we use technology? How do we use different ways of exploring how we work in the office to make hybrid as effective as sort of the all in or the all out model? And by the way, I don't think we'll get it right the first time. I think it's going to be an experimentation process where we try fail, try, fail, try fail. So, yeah, really important topic.

Caroline Hyde:

Carter, how have you found the year of the pandemic being a way that you've been able to think uniquely as a team within the stress tests of being at home or in? Have you found that things have changed now that perhaps you're coming into the office a little bit more, or ... ?

Carter:

I think we're probably closer to Kristi than to Citadel. We sent everybody home and we kept them home for quite a long time. I fully agree that we knew how to work together. We figured out quickly how to work apart, but the hybrid model's going to be the one that's going to be more difficult. We obviously weren't lucky that the pandemic happened, but we're lucky it happened in 2020 instead of 2018 or 2016 because the technology allowed us to do things that we couldn't fathom. I used to say no to any video conference friends three or four years ago, because it detracted from the experience. It was choppy. You couldn't see anything, you look into a conference room full of people, you didn't know who was talking. And I was actually at a conference not too dissimilar to this with the CTO of Zoom back in 2019, I was like, "What's zoom?" I hadn't even heard of it at the time. And boom, look [crosstalk 00:20:29]-

Caroline Hyde:

Now we know it too well.

Carter:

And when the world did melt down, I mean, not only could we have the technology tools to interact with people, we had enough bandwidth to be able to do it all at the same time. I had three kids on Zoom school, me in the other room trying to do things. And I think we found that our quantitatively measured productivity stats went through the roof. And some of that was a bit of anxiety. We had nothing to do, so there wasn't an opportunity cost, but we're still seeing them quite high. It actually, hasn't gone down from 2020 to 2021, but we do know something's missing. I think it's the walking to and from the meeting where you catch somebody. Frankly, it's the exposure for younger people to more senior people just to help them as mentors. And that's the type of thing that we're yearning to get back to the office for. But I've gone back a few times. This is definitely the first time I've worn a tie in a year and a half.

Caroline Hyde:

It's very nice.

Carter:

This is probably the second time I've worn socks though.

Carter:

But if I go back into the office and you to take a little bit of risk and we're all comfortable, we wouldn't be here if we weren't comfortable with that level of risk. But then if you're just going to get to your desk and log into a bunch of video calls anyway, then what's the point? It's a bit of chicken and egg, and we do know that the senior people go in magically, the more junior people are going to start showing up. So we're trying to find that balance, but we're going to do an experiment for some time and we're going to do what Two Sigma does. We're going to collect the data, see what works, try to measure the connectivity of people within the company, try to measure things like relationships, very difficult to do, very subjective, but we'll do our best. We'll try to pivot to see and try to do things that work the best going forward.

Caroline Hyde:

Fascinating. Gary, I mean, of course, when you're focusing in on the data, was your data collection stress tested in any way when people were working from home? Or indeed, have you been using the ways in which you analyze the markets to analyze your own efficiency at work?

Gary:

Yeah, so I'd say we had a little bit of an advantage in that we have 23 offices around the world. We've been connected since the firm started back in 2007. So I think we understood concepts of Zoom and how do we connect to our people? I would say, we do that in a number of different ways, a ton of surveys where we're listening to our people and how they're doing, whether it's an investment type issue that we'll ask all of our employees about. Or how their work/life balance is or whether they want to be at work. And so that connectivity I think has been very useful for all of our people to feel engaged. I think the other thing that we really tried to do was build more and more transparency into what's going on at the company.

Gary:

So we continue to drive culture around the firm. I think that was extremely important. I think pushing our managers around the globe of trying to innovate and just do different things, adapt. I think about somebody, one of our general managers in India, he has Friday [inaudible 00:23:19]. He'll actually go around and interview a different person every Friday in the team and just to share, what are your favorite movies? Or just get to know the people that you would if you are working and going to a water cooler or out to lunch, but doing that so that the whole team can appreciate what an interesting individual it is and get that kind of quality of the culture of the firm. And so you-

Caroline Hyde:

What's your favorite movie?

Gary:

What's my favorite movie? It's got to be Shawshank redemption.

Caroline Hyde:

Very good.

Gary:

Your favorite movie is what?

Caroline Hyde:

Oh, at the moment, it's probably Frozen II. But as a parent of young kids [crosstalk 00:23:56] you've got to embrace-

Neal:

Well, the sequel was better than the original.

Caroline Hyde:

It definitely was. I'm glad you seen me on that Neil.

Neal:

I missed the trilogy, unfortunately.

Caroline Hyde:

Yeah. Where's number three? Luckily I can't sing along. Neil, your perspective of how you've thrived with cultural perspective.

Neal:

Well, look, I think the irony is that the people who need to come in the office the most are the young people, because that ... it's going to Joanna's point, Kristi's point. When you're looking at the younger generation and I have a fair share of millennials, children, they want to be more flexible. They want to be able to be remote and not be chastised. They don't want to have to be at the 8:30 meeting. They want to work till 10:00 at night. They want that flexibility, so that's the irony that I see. I think from a culture standpoint, we're much more on the Citadel spectrum in the sense that we've had people in most of the time and we're in the state of Virginia, a little bit more open. But we did mandatory testing, and I think culturally, I think we did hold it together, but it's been a challenge. And I think the hiring going forward, that's the part you know-

Joanna:

I think that's a really good point. I mean, there's the people you have in your walls now, nobody on this stage would say that that's ... it's necessary, but not sufficient for your business to continue to grow and compete. And so this period 2020, and early 2021, I'll be honest, it was a hiring boom for us. And I'd love to kind of talk to the CEOs of Morgan Stanley, and Goldman Sachs, and say, "I can tell you what some of your people were doing. They were taking Zoom meetings for an interview with a lot of the people on this stage." From that perspective, it was great. But I think one thing I noticed, I interview everyone who comes into my department no matter how junior, senior, what they do. If that's that sort of hiring blueprint going forward ... sometimes it was a bit transactional, because it didn't cost people much to go to these interviews.

Joanna:

Sometimes it kind of felt like being on like a date where you didn't care whether it worked out or not. You had to kind of have your own radar about whether somebody was very motivated to move, when you're trying to get people to move, how do you overcome the personal connections they have to the place where they are to come to your place where you're just a face on a screen maybe? So I don't know if anyone ... how your hiring went through all of this? Whether you think that's the model going forward?

Neal:

Can I say one thing? I'm sorry Carter. The other issue is that you learn that a lot of your workforce live alone. This was disastrous, and then you create these artificial hierarchies, well, it's easy to have the accounting team stay home so you can have more social distancing, but the portfolio team has to be collaborative and has to be in the same room. I think those are challenges. Those are things you have to break down because you don't want to be in the wrong department, you feel you're not connected to ... You'd be surprised. People who are in accounting or in other parts of the firm, administrative, they want to know the direction of the firm. They want to know what you're investing and they actually ... they care. They have a stake in your business, and so these are challenges that I think we're going to all have to deal with on the panel. Sorry to interrupt Carter.

Carter:

No, I was going to say you're describing culture and it's one of the things that's challenging is bringing culture to life when you're in a remote environment. You can try to do some video things and the Friday [inaudible 00:27:28]. That sounded scarier than it is, but that doesn't bring to life when you're in the office.

Neal:

It wasn't Frozen II, but ... [crosstalk 00:27:36].

Carter:

Just quickly, the barrier to exit has never been lower. So it's easy to take an interview. You don't have to actually go to your manager and say, "I have a doctor's appointment, or you have to play sick." I mean, I even think when I'm old enough that you used to have to call in sick to work, and then people would email [crosstalk 00:27:53]-

Neal:

Now you're dating yourself, Carter.

Carter:

The gray hair dates myself more, but now you just set it up in your day and you just mark it off and you switch maybe from your work machine to your personal machine. And then even if you are resigning, it's a lot easier to do over a video call than having that uncomfortable feeling of going. So I do think it's become more transactional, and I do think we have to take that into consideration when we think about what are we offering, the employees that we have to retain them, and what are we offering the employees that we need to attract them? And that's definitely going to be different going forward.

Kristi:

And I guess that's where maybe I would say step in and say that, I was really fascinated to see over the course of the pandemic how much our employee engagement scores went up rather than down and-

Caroline Hyde:

How are you measuring that?

Kristi:

Well, we would do frequent surveys of our employees just to gauge them on a number, a range of statistics. And we would be able to compare it to employee surveys that we've done in the past. And then of course, to the immediately proceeding survey. And we saw really consistently high levels of employee engagement. And I think the reason for that, and I think it is really important, I think it's because the pandemic to me really gave life to a new way to lead. I don't know what the right word for it is. I call it people centric leadership. Because I think before the office was this great homogenizer. Everybody sort of came in and they had the same computer and the same desk setup and the same cubicle.

Kristi:

And then all you have to do is just look at the backgrounds behind people's Zooms, see the interference that happens with some people and not others, doorbells dogs, babies, and it forces you to this realization that managing your people is not managing a Corpus. It's managing a set of individuals. It's seeing them as a whole person. And I think the pandemic really forced us to do that. It forced us to recognize that there is no shorthand for connecting interpersonally with your people, for understanding their whole context, and managing within that. And so the biggest risk that I see is we think about retention at BMO is that we take that shorthand again, that as people come back to the office, we lose the power of that individual connection because it does take time. And I think it is truly distinctive from what we did in the past.

Caroline Hyde:

Gary, you were mentioning with 23 locations, you were already pretty savvy when it came to having a culture across borders. There's an audience question saying from a large ... maybe the Coinbases and some other companies that have gone fully remote, they might abide to this. But the hybrid model is a waste of resources says this particular person, are there not other ways companies can maintain their culture? So when you are thinking, was there a reason why you haven't decided to just go fully remote? What was it that you needed to have in the location? And what is it when people are ... I mean, you want to hire talent in Texas or in a different location from perhaps New York and some of the other main hubs, how do you make sure that they are as involved as others who are in the office?

Gary:

Yeah, so I think there's a couple things one ... and I think people touched on a lot of great, great topics here. One is enculturating people, transparency of how the firm's doing. You mentioned the accounting folks or the legal folks, and making sure they're part of that. I think Igor, our CEO has said it many, and rightfully so, is that intelligence is distributed evenly around the world, but opportunity is not. And so being able to provide people those opportunities. Now, that being said, there's a balance, there's a very careful balance of what people want. Do they want to come into the office? Do they want to be part of a team environment and go to lunch with someone? And I think we've really tried to listen to our people and through a lot of surveys, you know, we want to listen.

Gary:

We get frequent updates from our people about what they're thinking. Obviously abiding by proper regulations. But we want to give people the opportunity to come in and spend time with their fellow employees, which I think is the right way to manage this situation, which is there's talented people all over providing them an opportunity to be successful. And if they do want to come in, be able to have the area to do that. So that's why we've got 23 offices and try to create an environment where we're really listening to our people, as opposed to forcing them and saying, "You're coming in three days a week, no matter what." We're really trying to provide that flexibility.

Caroline Hyde:

I mean, all of this of course comes to the fight for talent, the retention of talent, and after what the best decade for hedge funds ... well, the best year for hedge funds in a decade, I'm pretty sure it's fierce as you're saying you. Exactly what Goldman Sachs and Morgan Stanley bankers are doing. They're on the Zoom to you to a large extent, Joanna, but what are some of the extraordinary ways you're having to present to candidates to get them on board? Do you not have to do that? Or are you finding that you're having to offer more of the profits towards them when they come on as perhaps traders within you? Is it sort of becoming more awkward to get people on board?

Joanna:

No, I don't think so. I think it's always that look, everybody on this stage will say the same and they'll really live it. But we want the best people and the best people always have choices. You're always used to dealing with people who are either their current place is going to want to retain them or they'll have other options. I think firstly and foremostly, we want to focus on generating fantastic risk adjusted returns for our investors. Nothing succeeds like success. It's a trite thing to say, but it's true. People love being on a winning team. You really have to understand how you win. And in Citadel, it is a place of great learning agility, there's high expectations, but there's a great meritocracy to the debate around investing, operational risk.

Joanna:

What's the best way to run our enterprise bits of the firm? How our engineers are integrated with it, and some of those moments, they will actually arise out of the silence. I've sat in many rooms, 10 other people, and we're just sitting there in silence for five minutes and no one really feels a particular need to fill that silence because we're thinking about something, and to us, that's a very natural way of how we work, to be thoughtful and to be challenging.

Joanna:

That was just so awkward and alien for us when we were not together. And I think when I interview people, the first thing they say is you're such a presence in name a market. You have such a reputation for trying to be best in class in a certain thing. And that's not just on the front office. No, I think that there's been ... there has to be a pull. People have to feel that pull towards you, as well as that push from wherever they are coming from. And you know, our results and what we do, and us being out saying, "This is the career we're going to offer you, and we're going to be there shepherding you through it in person." I think that's proved a bit a big pull for us.

Caroline Hyde:

Carter, to pull people in though, to a large extent, we're seeing, entire trader teams joining certain hedge funds and they're being offered what? Eight to 20% in terms of payouts. There are suddenly all these sort of pass through fees to recoup some of the costs getting on this winning team that you're going to hire. Is that good for the investor?

Carter:

I mean, we have a very different model. There are plenty of firms who use models like that and have been massively successful both in the near term, short term last year or over decades. We think that innovation comes through collaboration. So we want to incentivize people to work together. We don't want to have individual silos. I certainly agree with the points made that people want to join a winning team. But I think back to what Neil said about millennials, what we found is that's a prerequisite and I completely agree that the best people have competing offers. And you do have to present more than just the best compensation. People are asking, "What is the purpose of the company? What are the mission? What are the goals? How do you support things outside of just the business objectives of the company?"

Carter:

In ways that I certainly think exacerbated over what happened in 2020 more so than perhaps when I was a 25 year old, considering different options. It's not just about, "Hey, we'll pay you more, give you the best option." I think it's a highly competitive market. You can't pay less. You'll probably end up with a weaker team, but it's just one piece of the puzzle to us. So it's who you're going to work with, how you're going to collaborate, what types of problems you're being asked to solve. And then some of the bigger picture stuff about what do my colleagues ... what are they going to look like? How can I learn from them and ultimately, how can the company reinvest in me as an individual to make me better?

Caroline Hyde:

Kristi, what are my colleagues going to look it like? Is it reflective of me? Are there women? Are there people of color? Is there diversity? That's something that everyone's had to confront now and ask themselves some soul searching questions, because this is a health crisis and economic crisis and a social crisis. How is BMO thinking about that? You were saying you've got thoughts on diversity and inclusion. I know you're really passionate about it. How have you been able to walk the walk, not just talk the talk.

Kristi:

Yeah. I would say, first of all, I think as an asset management industry, we really need to ask ourselves some very tough questions about the representation of female and people of color. While I haven't seen probably the most recent statistics. Several years ago, Morning Star did a study really, that was globally. And they looked at the number of PMs that were women, they looked at the number of analysts that were women specifically, and about 11% of name PMs were women, about 13% of analysts. If you look at the general asset management industry generally, not just at obviously people who are practicing investments, you find that only one in five people in senior management is a woman, and it's the only area of financial services that has been retro aggressive since 2017 in terms of its pipeline.

Kristi:

So I would say, I think the thing that we've done at BMO, which I think is distinctive, is we've looked at the problem very holistically. Like we don't look at just what's happening inside our organization. We actually look to take a much more macro and global perspective. So it's not just how do we create people, and get people to inside our organization. It's how do we support women and people of color as entrepreneurs? How do we ensure that they have access to the kind of capital that they need to actually grow and manage businesses? And it gets to that whole notion of authenticity, which I think Carter was really hitting on when he talked about purpose. At the end of the day, I think people are looking for you to say what you stand for, but they're also looking for you to kind of pass that test up and down your ranks.

Kristi:

And so I think diversity is a critical element of that. The other thing that I would say is I keep waiting for the tsunami here and maybe I've just been in asset management too long and seen too little change, but I think we have to be considering what our social license to operate looks like into the future. I think we have to be considering who comes into our business and actually actively disrupts it. Because if you look at it statistically, we're just all wrong on diversity and we're not making enough change quickly enough, I think, to really secure the future of our industry. I think it's that important

Caroline Hyde:

Well said. I think Neil, what's interesting is this has become a moment where we're not your employee. Your stakeholders is not just employees who want to know what you look like, what you stand for, what you invest in. It's the investors as well, want to understand who they're investing in and also what they're investing in. And this sort of dovetails into this, the environmental as well as the social, as well as the governance. And there is a fear out there in the moment that ... I use that sort of almost dirty phrase greenwashing. How are you using data at the moment to be understanding that ESG is within your portfolio? And then it's true to actually what the data show.

Neal:

If I could just go back to what Kristi said about diversity and then I'll answer your question if that's okay. As a firm, like you have to ... in order to have change, because for example, I think the statistic is half the law students are now women, right? That's a change from when I went to law school way back when, so change can happen and you have to believe it, but you have to also consciously take steps. We have a health room, we have a doctor on staff, so that, that person, and can help navigate you to a specialist. We have a vacation policy, I believe somewhere, but I have no idea what it is. We don't care. If you're a mother and you just need a day, you don't have to explain it to anybody.

Neal:

Just that's the way it is. You can work virtually and you can call in. We put women on all the boards, at least one woman is on every board of all of our products. You have to lean in, you have to take steps, we can do better. We do track how many women we have, how many people we have of color and we report it. We're fortunate. Going now to the ESG question, we have European clients, they demand it. You need the investor base to demand it. You need your workers to demand it. I think that's how change happens. So what we do in terms of ESG I think ... so we do two different things.

Neal:

One is we're invested in opportunity zones in the real estate side. From our first fund to our second fund, we have put in ... we brought in consultants and we actually track the data very specifically. The government has to help there. The Biden administration has talked about requiring certain reporting metrics, totally applaud that. That's how you get change. The other thing we do is we advocate ... we're in Washington DC. We advocated, and we actually ... and a lot of credit goes to my partner, Manny [Friedman 00:42:06], who's more expressive than I am on many things, including this topic. We work really hard with members of congress, including Maxine Waters, who deserves a lot of credit to push in a program and treasury for minority depository institutions and community development, financial institutions, CDFIs.

Neal:

And that's how you get change. You have a crisis ... I don't know if it's Winston Churchill or [inaudible 00:42:33], it doesn't matter. It's hard in our system to ... you need consensus. That's how our government is set up. You need massive consensus or a crisis that foments consensus, and that's what happened. So that's how you can finally get this kind of legislation in and create programs that can move things forward. But I think it's a combination of your employees, the government, and investors, and investors I think particularly in Europe, I think have done a very good job pushing us to make change and pushing people like us to make change. Sorry for the long-winded answer.

Caroline Hyde:

No.

Kristi:

That was a good one.

Caroline Hyde:

Not long-winded at all. Gary, I think this is something that you've thought deeply about is who you're investing in, how you're investing. It's at the very first question that people are asking right now.

Gary:

Yeah. I think in terms of ESG and even broadly, I think the ESG has been a readily topic for the last bunch of years. I think one of the great things that was touched on is the disclosure of more and more data. Companies are being forced or being told that there needs more and more transparency into how their business practices are, what their environmental footprint, what type of emissions that they're doing. And I think that will be for a group like us, and potentially for folks like Carter is a great thing at our back, so we don't have to go in and get the gory details and speak to every single company, but rather there's more and more legislation going on of what pieces of data are important and informative.

Gary:

And that feeds into the various ways that we can analyze that information, and kind of comply with any ES or G or really find signals of what's not necessarily reflected in prices. And so I think that's a phenomenal trend. Again, Europe has certainly started, you're seeing a lot of this in Asia. People adopting more of these principles. And so I think that is a trend that's here. And I think there's just a vast amount of ... with that data to be able to create different ways of trying to extract value out of the market. So I think it's a phenomenal trend that is certainly here to stay. The other thing I just wanted to point out in terms of the fight for talent that we talked a little bit about, one of the things and bringing their authentic selves in educating people, we have the good fortune of having a little over 700 quants that have roughly about 1400 degrees.

Gary:

So they're used to being trained. And I think as we train people on technical acumen and different AI or techniques, there's also training them on how do they adapt to a workforce? How do they think about bringing their whole selves to work? What are the proper things to say and not to say in terms of how they're interacting with people? And so I think investing in people's whole self, not just their technical acumen, but also what they bring to the table, how do they adapt? How do they react? What kind of things are appropriate in a workplace? And what's not I think trying to educate their whole selves is something that we spent some time on.

Caroline Hyde:

Bringing it back to talent, Joanna, interestingly at the start you were saying, you want to bring more software built in-house. You want to be able to own that process largely from a risk perspective, but just in general. And another question from the audience saying front office roles, but also back office traders, analysts, how much do you think will be automated in the next five to 10 years? How much talent do you think you need to bring into your four walls?

Joanna:

On the risk side? I would say, when I was a younger person in this job, and when I first started leading teams, the production side, producing a risk report. It was a part of the job. In fact, for some people and maybe in some banks, it is a job. I personally don't believe it is a job. One of the things we've been doing is saying, "Look, I actually want to spend less time on production." In Citadel, from the risk perspective, but if I speak to my other colleagues, they would concur. We all want to build as much intellectual property as possible. That doesn't mean your whole process and your whole workflow and your whole understanding being on some spreadsheet that when that person walks, it kind of like walks with them or like breaks the next day, which always seems to magically happen.

Joanna:

Within Citadel, certainly within my team, we're all about building intellectual property and risk. And that means codifying that and shrining our processes. Culturally, how we believe we should do risk and, and putting that in workflows in our software. And I know the same thing happens with my colleagues in treasury, in how we manage the liquidity of the firm, in how we think about operational risk. We are a pretty big hedge fund. And that's something we do think about, but in our own way, how we think about reputational risk, how we manage our prime broker relationships and optimize those for our counterparts, as well as ours. Having people who really understand ... look having engineers, software, people who you go to them, you just say, "Oh, I want to do this," and you give them no idea of your workflow.

Joanna:

You're not going to get a very good answer to your solution. For us, my team is three groups of people. It's risk managers who are domain experts in markets. There are quants who will go away, and solve ... I can't give one of my risk managers a two-month homework assignment on something. If it's something heavy quant, our quant people will do that research and our engineers will work with them. I know that's exactly how it works in other bits of the firm. We aim to create an entire workflow.

Caroline Hyde:

We've got about seven, eight minutes left. It was always going to happen that someone's going to ask about crypto. And Neil, you started by talking about FinTech and the opportunities, their disruption, the regulation that you see. I mean, this question comes from attendee number seven. Can the panel comment on your view on the future of crypto markets and what extent your firm is exploring this burgeoning space? Are you exploring it? Given the regulatory ... well, talk of regulation to a large extent?

Neal:

No. That's a great question. We kind of have a picks and shovels approach. If people want to go mine gold, great. We'd love to invest in companies that sell the picks and shovels. So what do I mean by that? In the bank context, it's banks as a service, and this is an emerging trend. It's been a great theme for us and I'm not going to name specific names, but the banks that are basically ... they have a bank charter, but they are not really truly a bank. They're regulated. One in particular or a couple in particular focus on the blockchain payments and blockchain trading. So depositors can go to that bank and then trade very seamlessly on the cryptocurrency exchanges. The bank doesn't have to pay any interest for those dollars, 99.5 and one case percent they pay no interest on deposits because the depositors there, because they want the bank chartered institution to facilitate trading on the exchanges, online gaming, online gambling.

Neal:

There's banks that just focus on these very specific areas. They're not putting out mortgages, they're not doing auto loans. They're focusing on specific emerging technologies and crypto is a big one. There's some issues in asset management about custodying crypto and that creates some issues and I'm sure everyone has a view on the panel, but we find it's more important to just focus on picks and shovels, and the convergence between the regulated world and the emerging areas, and behaviors by frankly younger people and millennials in wanting to trade crypto. So just focus on how do you sell picks and shovels?

Caroline Hyde:

I think the easiest question is who on this panel hasn't yet had a conversation at Milken about crypto or been asked a question about it? It feels like we will forever be asked more and more questions on the subject. What questions do you want to now have while you're here at Milken? What for you Carter is on your top of mind. What is worrying you or what is exciting you that you want to go out there and have a conversation, a cocktail over later this evening?

Carter:

I think it's the beauty of Milken as it all comes together and we're always encouraged as attendees here to go listen to panels or experts outside of your field. And I went to a dinner on Sunday night and was blown away about how little I actually knew about what's going on, not just in the VC world, but specifically in biotech. And obviously, the pandemic has brought that to the front of all of our minds. And I do love coming here because immediately we might start thinking about, "Well, how can I gather data on the that?" We might start thinking about how can we invest in those things? But all of the social issues building better diverse workforces. To me, that's all about improving the outcomes that we're hired to do for our clients. And I just love having that collection of data through conversations.

Carter:

We're gathering data the old fashioned way here through conversation, and I didn't realize how much I missed that until we started having it again. So when I think about cocktail hour tonight, I love coming here because it'll be an expert in policy, an expert in healthcare, someone that we compete more directly against in the investment world, all with different perspectives. Our view is that's how you're successful. It's creating a 360 degree review of all these different pieces of data, that one form, the future prices of securities and how can we gather all that, put it in our process and hopefully make good solid predictions in the future.

Caroline Hyde:

So Gary, other than going and listening about the future of psychedelics, for example, what are you focusing in on? What are you passionate about or worried about?

Gary:

Yeah, I was a little bummed I missed that talk yesterday about the psychedelics.

Caroline Hyde:

Me too.

Gary:

But yeah, would've been fun, but it was my first time, so I'm a newbie, I think like yourself as well. There's just such a great buzz, big focus on diversity. I went to a great panel yesterday with one of our own from WorldQuant University. And just where is education in terms of there was such a focus on we have an online university that is a master's in financial engineering and where is that relative to what schools are doing now? Even the gentleman from UCLA talked about, "Well, maybe it shouldn't be a four year program. It should be a three year program." And just a lot of the flexibility of thinking about ROI of education, and whether it can be done online maybe in an even more efficient way. Was certainly something that has peaked my interest in ...

Caroline Hyde:

Yeah. Like an old British way. Meanwhile, Kristi, what are you thinking about tonight?

Kristi:

I guess I would just echo this theme that I think one of the wonderful things about Milken is that you couldn't possibly predict the conversation that you're going to have over dinner. So last night I sat at dinner and I had a woman filmmaker on one side and a philanthropist on the other, and it was just a fascinating conversation about so many things. And probably one of the most interesting things was how you could use documentaries to really I think elicit a much deeper amount of emotion on climate change, just a fascinating conversation.

Kristi:

But I guess if you ask me kind of where my personal passion is, I think it probably is not surprising kind of given some of the commentary that I've made on this panel, which is I am extremely concerned about women in the workforce. I'm concerned that one in four women is considering opting out. I'm concerned that survey results show that over 50% of women are, are at least on the verge of having a mental health crisis because of the multiple pressures which have fallen uniquely, I think to women over the course of the pandemic. So I'm really hoping to continue those conversations. I think there are things that we need to explore. I think-

Caroline Hyde:

Are there solutions to be had?

Kristi:

I'm sorry?

Caroline Hyde:

Are there solutions to be had? [crosstalk 00:54:26]-

Kristi:

I do. I think one of the things that I'm thinking about right now is what's the relief about for women? Do we need to consider some sort of sabbatical program for women to catch their breath? What would that look like? How would it not set them back? I think we have to be very creative about solutions. And I think we have to very much confront the fact that while COVID, I would say in our industry dramatically increased our productivity, and I thought some of the stats that Carters shared were, were very powerful that did not come without a cost. And we have to figure out how we repair I think the fabric of the work environment and the integration that women need to search out and find in terms of their work and life mixing.

Neal:

I was going to say, so I have five daughters, four whom are working age and they have each individually separately, not together, pulled me aside and say, "Dad, you know, you have to realize like, I have really nice people who I work for, but they'll say some things that are just really offensive to women, and they just don't realize it."

Neal:

So my solution, to the extent I have one, and I think it's a challenge for folks like Gary and Carter and myself, is you have to give your employees like ... have someone come in your office, close the door, a woman, and say, "How are you finding things here? No holds barred. Tell me exactly how you feel about things." Because you have to educate, right? That's how you have change. And so hearing that from my daughters, it's an epiphany four times over. But I think that doing that in the office is really, really important. You also have to strive to put people in leadership roles that are women. Because there's going to be a different conversation as a result.

Caroline Hyde:

You need women like Kristi, you need women like Joanna, who has a leadership role as a female at Citadel of course. And what are you going to seek out in terms of conversation tonight? What's bearing into your mind that you're worried about or seizing an opportunity on?

Joanna:

Look, just by virtue of the people I've been around, I've been very familiar with the role of philanthropy and how that can really get things done in a very direct way. I'll finish where I started very quickly, I talked about the scale of this deficit and with the Biden government, like the huge role of the government in this country, not leased as you know, they buy all the bonds. They're thinking about some huge spending program. I think interacting with some of the government officials. I spoke to chair Waters yesterday as well. A couple of things, like I really would love them to be ... to continue to educate themselves about some of the businesses and just our securities business being one.

Joanna:

But just generally this sort of retail investing phenomenon, I think I hope that they spend this money wisely. I think they have like one shot to either leave an amazing legacy for future generations of this country and other central banks around the world in the same position or to leave like a huge burden that people will never be able to get out from under whether that's anybody paying taxes, whether it's any young person, man, or woman. And so I think this having seen the philanthropic side of it, having some exposure to the government and policy side of it, and seeing how both of them can get the solutions, but I think the U.S. is on a precipice of needing to really get this one right, and I hope they do.

Caroline Hyde:

So if you find any of these fine panelists tonight and you have some real thoughtful policymaking focus, whether it's policy, whether it's diversity, whether it's the coming together, a confluence of all, please seek them out. But for now I think it's been such a joy to be almost a privilege, really, to be in the room, to have this ... what felt like a very private conversation, but distributed to the masses with Neil, Joanna, Kristi, thank you so much, Carter and Gary, what a joy, please do give it up for our panel.

Michael Torrance:

Thanks for listening to sustainability leaders. This podcast is present by BMO Financial Group. To access all the resources we discussed in today's episode, and to see our other podcasts, visit us at Bmo.com/sustainability leaders. You can listen and subscribe free to our show on Apple podcasts. Or your favorite podcast provider, and we'll greatly appreciate a rating and review, and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.

Speaker 2:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry strategy or security. This presentation may contain forward looking statements. Investors are caution not to place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment, legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment tax and/or legal professional about their personal situation. Past performance is not indicative of future results.