0:00

Hello, I'm Ted Sides, and this

0:02

is Capital Allocators. This

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show is an open exploration of

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the people and process behind capital

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allocation. Through conversations with

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leaders in the money game, we learn

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the kingdom allocate their time

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capitalallocators.com. All

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opinions expressed by Ted and podcast guests

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are solely their own opinions and do

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not reflect the opinion of capital allocators

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or their firms. This podcast is for

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informational purposes only and should not be

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relied upon as a basis for investment

0:45

decisions. Clients of Capital Allocators or podcast

0:47

guests may maintain positions in securities discussed

0:49

on this podcast. My

0:52

guest on today's sponsored insight

0:54

is Mike Freno, the chairman

0:56

and CEO of Bearings, a

0:59

$400 billion global manager that

1:01

invests across public and private

1:03

fixed income, real assets and

1:06

capital solutions on behalf of

1:08

its insurance company, Parent Mass

1:10

Mutual and other institutions. Bearings

1:13

emerged from a combination of four investment

1:16

brands in 2016 and has expanded its

1:20

capabilities by acquiring partners with

1:22

complementary skills that fit into

1:25

its culture. Our

1:27

conversation covers Mike's path to the

1:29

CEO seat, the creation of the

1:31

modern Bearings, the power

1:34

of insurance ownership and

1:36

lessons from leading, acquiring and

1:39

integrating asset managers. Please

1:42

enjoy my conversation with Mike

1:44

Freno. Mike,

1:47

thanks so much for joining me. Absolutely. Great

1:49

to be here. Why don't

1:51

you take me through the path that brought

1:53

you to the seat at Leading Bearings? I

1:57

was a graduate from Furman University as

1:59

an accounting major. and started out

2:01

at what was the legacy I

2:05

was in audit for a couple years and quickly determined that that

2:07

wasn't how I wanted to make a long-term career. Learned

2:16

a lot though, wouldn't trade it and actually

2:18

have recommended to my kids that they pursue

2:20

an accounting background. It did a lot, it

2:22

just wasn't for me. So I'd moved over

2:24

to the tax side and then determined that

2:26

wasn't probably the best fit for me either.

2:28

And then had an opportunity to go work

2:30

at a small startup hedge fund as the

2:33

controller and when I say small, it was

2:35

about five of us. We had

2:37

some success and had a lot of growth and what

2:39

happens with small companies that grow is you start to

2:41

wear a lot of different hats. And

2:43

that really gave me the opportunity to get out

2:45

from just doing accounting

2:47

work but still using an

2:50

accounting skill set to start doing

2:52

underwriting on companies. And

2:55

really my focus was around distressed debt. So

2:58

I was able to focus on fundamental cash flows,

3:00

things that were near and dear to

3:02

what I did like which was looking

3:05

at financial statements going through Ks and

3:07

Qs and analyzing a company and building

3:09

a company from that standpoint. So

3:11

that ran me through to 2005

3:14

and then had an opportunity to come to what

3:16

at the time was Badgeman Capital which

3:19

was one of the predecessor companies to what we

3:21

are now, Barings. I came over

3:23

to the high yield side, managed portfolios,

3:26

started to move into various roles, ran the US

3:28

high yield group, formed the global high yield group

3:30

which was one of the first of its kind

3:32

at the time. And then ultimately

3:34

had some more responsibility over other investment teams

3:37

and then was fortunate enough and certainly humbled

3:39

to be put into the role that I

3:41

have now of chairman and CEO of Barings

3:43

in 2020. Barings

3:46

as an organization has a very long

3:48

history. I would love to hear the

3:50

history and how that's evolved to what

3:52

Barings is today. It's

3:55

well over 100 years old. The name

3:57

certainly. It was originally a merchant

3:59

bank. way back in the day. What

4:02

we are a part of was really

4:04

the asset management business within the bank. We

4:07

are owned by MassMutual, so we were owned

4:09

by one of the Fortune 100 life insurance

4:11

companies. The start of what

4:13

became this separate asset management business

4:16

was at the time quite

4:18

innovative because traditionally you had

4:20

insurance companies who had

4:22

captive capabilities within the

4:24

insurance company and the

4:27

management team at MassMutual in 2000 thought

4:29

that there's no reason that we can't

4:31

take this show on the road, so

4:33

to speak. Not only just have capabilities

4:36

to manage money for the general account, but

4:38

why not manage it for third parties as

4:41

well? And that would ultimately

4:43

benefit the policy holders not only

4:45

by providing returns for the

4:47

general account, but then also having an earning stream

4:49

that's from third parties. And so

4:51

the business was then spun out. The

4:54

team that was part of MassMutual investment

4:56

management for the most part was spun

4:58

out into Babson Capital. And again,

5:00

that's commonplace now. If you look around at a lot

5:02

of our competitors on the insurance side, they

5:05

either in many cases are

5:07

owned by asset managers or asset managers

5:09

are owned by insurance companies. Taking the

5:11

same thing, but back in 2000, there

5:13

just wasn't many people doing that. So

5:16

I think that speaks to a little bit about the

5:18

innovation in the way that we as

5:20

an overall enterprise, both Bearings and MassMutual,

5:23

think about the opportunity set that exists.

5:26

So that was Babson Capital and then over time,

5:29

MassMutual had acquired other brands. So

5:31

it did buy Bearings

5:33

from ING in Bearings

5:38

itself was established in 1762.

5:42

So MassMutual's old, Bearings is much

5:44

older. But we purchased the asset

5:46

management piece from ING, who

5:49

had purchased it when there was the crisis

5:52

out in Asia as it related to the

5:54

Bearings Bank. We then made a series of

5:56

other acquisitions, a group that was called IDM,

5:58

which was institutional debt management. which was

6:00

a group that managed CLOs and leverage loans. That

6:03

was in the US. We bought a group

6:05

out of Duke Street Capital a few years

6:07

later to complement that. So we

6:10

had a US capabilities, we then had European

6:12

capabilities and through that we just bought a

6:14

lot of things as a roll-up. MassMutual

6:17

owned five asset management brands so

6:19

they're effectively running a multi-affiliate model.

6:22

The five brands were Badgson Capital which

6:24

was what I was a part of

6:26

and was largely a fixed income group

6:28

that was institutionally focused. There

6:30

was a group called Wood Creek which

6:32

was really a real assets private equity

6:35

business and then there

6:37

was a group called Cornerstone which was our

6:39

real estate debt and equity business and

6:42

then finally there was Barings which

6:44

was the international equities and multi-asset

6:46

focused business. In addition to

6:48

that there was Oppenheimer Funds. The

6:50

decision in 2016 was to combine

6:53

four of the five brands. So

6:55

everything I mentioned with the exception

6:57

of Oppenheimer Funds were to be

6:59

merged under the new name

7:01

of Barings. Babson was actually

7:03

the largest from an AUM

7:05

standpoint and largely speaking it was the

7:08

Babson management team that was running the

7:10

company thereafter but we did take

7:12

the Barings name because we felt

7:14

it had more recognition and it was

7:17

better known throughout the industry and certainly

7:19

better known in our client space and

7:21

that's really what formed Barings

7:23

as it is today and the 400 billion

7:26

dollars that we are today. How do

7:28

you describe Barings strategy across

7:30

what you're doing? What we've

7:32

done recently is form a strategy statement that's

7:35

relatively succinct and talks about what we do

7:37

and who we do it for. We don't

7:39

do everything for everyone everywhere

7:41

but we look at our

7:43

clients as institutions, insurance companies and intermediaries

7:45

and what we do for them are

7:47

fixed income both on the public and

7:49

the private side, real

7:52

assets which includes not

7:54

only real estate but also infrastructure equity

7:56

and real asset strategies on the private

7:58

equity side And then Capital Solutions,

8:01

which is really a broader state too.

8:03

I mean Capital Solutions can be portfolio

8:05

finance lending, it can be a structured

8:08

equity component for providing liquidity to

8:10

a fund investor. That's how

8:12

we bucket the three capabilities that we

8:15

do. Some of them overlap, but

8:17

we've tried to say to clients when we sit down,

8:19

these are what we do. That

8:21

set of capabilities has similar variations of

8:23

a theme flavor of what that risk

8:26

is, starting that fixed income DNA and

8:28

real estate and real assets compared to

8:30

say like venture capital. I'm curious how

8:33

the insurance company as a parent

8:36

influences and thinks about risk and

8:38

investing. Most of

8:40

us have a heritage in fixed income, so

8:42

there's a mindset of downside protection. One of

8:45

the things I learned pretty early on when

8:47

I started looking at credit is credit

8:49

is one of the asset classes that works for

8:51

you 24 hours a day, seven days a week.

8:54

You're accruing a coupon all the time. So

8:56

if done correctly and minimizing losses,

8:59

there's great returns to be had, but

9:01

you do have to sometimes move down

9:03

the risk scale to find more attractive

9:05

returns and sometimes you get things with

9:07

distressed and other alternatives to capture

9:10

some capital appreciation. That's the way we

9:12

look at real estate, but we do

9:14

have a very skew for the

9:17

majority of things we do is really

9:19

a cash flow generating type investment. We

9:22

complement that with our private equity capabilities

9:24

and our fund investing, but certainly

9:26

given our DNA and heritage coming from

9:29

an insurance company, which we're a mutual

9:31

company, our policy holders are the ultimate

9:33

owners of the company, they're looking for

9:35

stability, they're looking for a growing dividend

9:38

and that really ties nicely to having

9:41

a portfolio that is predominantly skewed

9:43

towards fixed income type

9:45

investments. What are some of

9:47

the other aspects of having an insurance

9:49

company as a parent that

9:52

permeates the organization? I

9:55

Think it is one of the best, if

9:57

not the best, ownership structures. Being Owned by

9:59

a mutual... The company were able to

10:01

build our private credit nor am business

10:03

in two thousand and thirteen that was

10:05

relatively early. It's become something now that

10:07

folks are looking at again. I think

10:10

it speaks to not only the willingness

10:12

and the mindset of the overall enterprise,

10:14

both bearings and massmutual to be looking

10:16

ahead and seeing where the trends are

10:18

going to go. But. We started building

10:20

that direct lending business in two thousand and

10:23

thirteen and we were able to do that

10:25

and be early because we can take a

10:27

longer term horizon. We're not looking at quarterly,

10:29

we're not looking at annual side Things were

10:32

saying What's gonna be in the best interest

10:34

of our stakeholders? A decade from now, we

10:36

have policies that said it: massmutual that are

10:38

eighty years old. So. They're.just concerned with

10:40

what we're doing today and tomorrow with a really

10:42

care about is are we going to be there

10:44

to meet their needs. Decades from now

10:47

on, Generations from now, and so. That

10:49

mindset really allows us to take a

10:51

long term approach to things when you're

10:53

building a business and I think it

10:55

is benefiting us tremendously and being able

10:57

to be ahead of the curve and

11:00

be patient. Or. Discipline with things. There's

11:02

things we certainly done that haven't worked out

11:04

that we've moved away from. But generally speaking,

11:06

if we think there's a trend in the

11:09

future, we have the ability and we have

11:11

the support of a capital base to be

11:13

able to make investments for the long term.

11:16

To. Cross Asset Management. There's always

11:18

a complimentary nature between. Trying.

11:20

To pursue an investment opportunity and trying

11:22

to build the business. Where. Does

11:24

that balance trade off and taking something like

11:27

looking into doesn't? thirteen? you're going into a

11:29

new business line. How do you think about

11:31

that? from your seat? I've.

11:33

Always viewed, Management's job.

11:36

So my job now. To.

11:38

Really live in the future. What?

11:40

Is going to allow us five years

11:43

from now. To. Be as well

11:45

positioned as we are today. But what

11:47

we're doing today in the success revving

11:49

today was really. A result

11:51

of what was done five plus years before

11:53

that. if you're managing portfolios and

11:56

our portfolio managers they've gotta be lucky day

11:58

to day on most by to thanks a

12:00

different mentality from taking

12:02

the longer term but that's where the

12:04

management side of things has to stay.

12:07

Look, we know that there's a trend

12:09

moving on right here and I think equally

12:11

important is does that fit your DNA? We

12:13

are not everything to

12:15

everyone everywhere. We think

12:17

we do things very well. We think we have

12:20

certain areas and skill sets where we've earned

12:22

the right to compete with folks but

12:24

candidly, it's not everything. We don't have the size

12:26

and scale to do everything. We don't have the

12:28

expertise to do everything. So what I

12:30

like when I get the opportunity to sit in front

12:33

of clients, I show them what

12:35

we do and it's broad but it's not exceptionally

12:37

broad and I say this is the

12:40

portfolio of capabilities that we've built over

12:42

time that we can demonstrate

12:44

excellence to you. If you're looking

12:46

for other things, that may not be us.

12:48

We haven't built that out and we may never build those

12:50

things out. At the scale that you

12:52

are today, how do you

12:55

think about the culture of the organization

12:57

that differentiates any of those individual products

12:59

from one of the competitors? I

13:01

love the question on culture. We're in 20 different

13:03

countries and so culture is different in some of

13:05

them. What is the same is

13:08

our values and the way we treat one

13:10

another and focus. I think what is core

13:13

to us and it's

13:15

a characteristic that folks at Bearings have heard me

13:17

use a lot is the confident humility. That's

13:19

the way we want to approach each other, approach

13:22

what we do every day. We have to be

13:24

confident because we're managing large amounts of capital but

13:26

we also need to have a level of humility

13:28

that we don't have all the right answers all

13:30

the time. We may need to be reaching out

13:32

to our partners internally to help us do things.

13:35

That's really one that I've tried to instill

13:38

and I think we've done a really good

13:40

job globally of approaching that.

13:42

What are some of the other core

13:44

values that you espouse regularly? It's

13:47

respect. We run everything as a

13:49

team-based approach. We have investment committees

13:51

for all of our products. We

13:53

don't have the Star Portfolio Manager

13:55

that a business is built solely

13:58

around. We Have incredible. The

14:00

gifted individuals, but they are

14:02

so much more powerful, working

14:05

collectively and collaboratively. Then.

14:07

They are it as individuals that

14:09

doesn't just. Work and then

14:11

apply to what we typically call the

14:13

front office or the investment banks. This

14:15

is something we have been spilled across

14:18

the entire organization because I think one

14:20

thing that asset management as it industry

14:22

has discounted. Is. The importance.

14:24

Of. Building up your operations, investing in

14:27

your technology, making sure the plumbing

14:29

works all the time. see seated

14:31

in other industries to where sales

14:33

outpaces manufacturing and you get had

14:35

a yourself in So you've gotta

14:37

bring this alone all the way.

14:39

We've just gone through a three

14:41

year. Technology transformation and were

14:43

just coming. I'm on the end of

14:45

it. Every one was in

14:48

this together and we set out.

14:50

We. Said everyone. Everyone's

14:53

gonna get about seventy five to eighty percent

14:55

of what they want. Which. Means

14:57

you're all be equally unhappy. But.

14:59

The good news is you're going to get seventy five

15:01

eighty percent of what you want and I think when

15:04

everyone has heard that over and over again and I

15:06

said okay, great We know that this is the best

15:08

interest for the business long term. It's been

15:10

an incredible thing to work, but it's been

15:13

stressful As you can imagine for going from

15:15

thirty plus systems to seven when I talk

15:17

to our board about it, It is the

15:19

thing that I'm so proud to see. This

15:21

entire group of two thousand people. All.

15:24

Rowing in the same direction is been

15:26

great. What have you

15:28

learned about how to manage

15:31

this large organization? I.

15:33

Mentioned coffin in humility. One.

15:35

Of the best things I learned early on was

15:37

no one has all the right answers and you

15:39

should expect herself to either. But.

15:41

What You should expect: This to surround

15:43

yourself with people who will have those

15:45

answers that you don't have. Stepping.

15:48

Into this role three years ago.

15:51

He. Think you're ready for it until you get into the

15:53

senior like wow, There's a lot that I don't know.

15:55

And I was really fortunate to have an

15:58

incredible team around me that I could. Okay,

16:01

I. Feel good About seventy five percent of this

16:03

stuff, but twenty five percent guys you needed give

16:05

some advice. Gimme your thoughts, tell me where I'm

16:07

wrong To me, I blind spot. I

16:09

think transparency is probably one of the key

16:11

things that we wanted to do out of

16:13

the gate. Is. To really. Share.

16:16

As much as we possibly could up

16:18

and down the organization because I always

16:21

felt early in my career. I.

16:23

Would rather know something and no I don't

16:25

like it then not know something and think

16:27

I don't like it. And. That's

16:29

his breeds anxiety into the organization.

16:31

It reduces trust and we want

16:34

to give people information. If you

16:36

can, give him straight information, let

16:38

them processor and most times people

16:40

whether they like it or not.

16:43

They're. Able to deal with it better. but

16:45

when you don't know and you suspect something,

16:47

Then. It just makes things worse. I've

16:49

really tried to run on managing folks

16:52

with giving his much possible information because

16:54

it's not just me running the company,

16:56

it's not just my leadership running the

16:58

company. It's two thousand people running the

17:01

company. In the more information they can

17:03

have a higher degree of success. laugh.

17:06

What? Are some of the ways that you

17:08

took your own style and created that

17:10

makes free know approach to how you're

17:12

going to manage parents. I.

17:14

Have a fairly casual approach to it. I

17:16

like to seats and driven. I make decisions

17:18

quickly. That's probably one thing that I've had

17:20

to learn a little bit more of his.

17:22

I've always had a philosophy that sweet and

17:24

always pivot and I have a great team

17:26

that pushes back on me at times. It's

17:28

has was maybe we should slow down a

17:30

little bit. I hope. It. Is one

17:32

where there is a level of. Shared.

17:36

Respect transparency. Our values aren't for everyone. There

17:38

are other business models that worked very, very

17:40

well who don't look and act like we

17:42

do, but for us, that's it. So I've

17:45

had to learn to let go of a

17:47

lot of things. I think that's probably one

17:49

of the hardest things. Every time you move

17:51

up in a new role is the things

17:53

that you used to do. You should stop

17:56

doing. And. The reality is.

17:59

I should model what I expect other people

18:01

to do in. I should make. Fewer.

18:03

And fewer decisions as I move up

18:05

the organization. I should make bigger decisions,

18:08

more important decisions, but they should be

18:10

fewer. And what I had

18:12

the learned early on was to. When.

18:14

People would bring me to sit up and I'd

18:16

have to look and say i think that's something

18:18

you can make I would tell people when they

18:21

first would report to me if I had a

18:23

new report. you're going to make ten decisions. And

18:25

a year. Nine. Of

18:27

those decisions, I'll. Agree with a

18:30

one hundred percent one of my may actually hate.

18:32

But. Guess what? That's your decision to make, not

18:34

mine. That's your decision And I'll support you

18:36

because I trust you and that decision. And

18:39

it's hard sometimes as typically these

18:41

are things that you previously did

18:43

or pad. A core competency

18:45

and that you're now relying on someone

18:48

else to do. But. It's not

18:50

my job to make all the decisions. And

18:52

addition to this pivots worse on the things you

18:54

alluded to that you didn't know. When.

18:56

He stepped into the sea. I don't

18:58

make all the decisions, but every problem

19:01

is now my problem. And that's hard

19:03

too because everything that goes off everywhere

19:05

and the organization is now. Something

19:07

I have to be concerned about and

19:10

the tendency to want a to fix

19:12

it. As a lot of oh to

19:14

do is hard to resist and so again sitting

19:16

back and learn, yeah But what I also wanted

19:18

to make sure I didn't do and I've seen

19:20

a lot of people do this is. When.

19:23

You come from a certain line of business

19:25

and everyone comes. From. Somewhere where

19:27

their skills are probably more skewed

19:29

and stronger than others is you

19:31

have a tendency to gravitate back

19:33

towards those when you're uncomfortable. When.

19:35

You're in that uncomfortable situation. you go back

19:38

and go. Maybe I'll sit down on the

19:40

trading desk and start talking shop again. i

19:43

had to pull myself away from that i still

19:45

do it by the way which drives them crazy

19:47

and they consider out there today if i get

19:49

office and just sit down and say what retraining

19:51

though roll their eyes as they should but that

19:53

tendency to want to move to the things that

19:55

are comfortable and i had to say look i've

19:57

gotta start building muscles that i don't have which

19:59

me I need to spend more time over here

20:01

and I need to be

20:03

listening more to my chief operating officer,

20:05

my chief human resources officer, my

20:08

chief financial officer. Okay, help me better understand what's

20:10

going on in this part of the business. I'd

20:13

love to turn a little bit to

20:15

the business strategy. Over the last decade,

20:17

certainly since this rebranded institution of bearings

20:19

came to be, we've seen more

20:21

and more consolidation and you've gone through

20:23

this as a roll-up in

20:26

the process of acquiring an asset

20:28

manager. What's worked? What

20:30

hasn't? We are

20:32

very much of the mindset that we

20:34

want to fully integrate acquisitions and that,

20:37

to be honest, doesn't always work for principally owned

20:39

businesses and there are a lot of businesses that

20:41

we've looked at where the principal

20:44

at the time is saying, look, we want

20:46

to continue to be a standalone entity. We

20:49

want certain support but we know how

20:51

to run our business, let's go run

20:53

our business. I

20:56

certainly agree that they know how to run

20:58

their business better than we do but I

21:00

think it's important for us from

21:02

an M&A strategy to integrate things

21:04

fully into the company that everyone

21:06

is all on the same page

21:09

and we've made two fantastic acquisitions

21:11

recently and I'd say fantastic not

21:13

because it's my genius but the people

21:16

we got were unbelievable cultural

21:18

fits for us. We've

21:20

just done two of them down in Australia.

21:22

One was a real estate business and one

21:25

was a securitization business. They were really a

21:27

nice complement to what we had and will

21:29

really serve as a foundation

21:31

for us to build out those

21:33

capabilities in broader Asia pack. One

21:36

of them we quote-unquote dated for

21:38

two years to have this conversation of

21:40

how comfortable would you being fully integrated

21:42

and that means fully integrated, branding.

21:46

Now that doesn't mean we get involved in

21:48

your investment process because you know that way

21:50

better than we do. We don't say hey

21:52

you got to do this, you keep running

21:54

your investment business but from an HR standpoint,

21:56

from a technology standpoint, from all of those

21:58

things we want you to be part

22:00

of this and we want you

22:02

to have the same culture as we do. We want that to

22:04

match. This is a people

22:06

business. We're a financial services company. There's

22:09

no widgets that we make. There's

22:11

no plants and manufacturing. Our assets

22:13

are people and people

22:16

can be great at times. People can be trouble

22:18

at times. And so if you don't get that

22:20

cultural fit the right way, I think

22:22

you set yourself up for failure. And so I

22:24

learned with a number of things, there

22:27

were times where we took a little bit too long

22:29

and maybe weren't as insistent as we

22:31

were in the integration. And so now

22:34

the ones we've done recently, we've been very

22:36

upfront and very transparent. This

22:38

is what we mean by integration. And look

22:40

for a lot of folks, it's not what

22:42

they want, which is okay because there are

22:44

plenty of businesses that have been very successful

22:46

that have more multi-manager affiliate

22:48

type models and they've been able to

22:51

be successful. It's just different from what

22:53

we want to do at Barings. When

22:55

you think about bringing in a

22:57

manager and the organic growth potential,

23:00

there are only a small number of asset managers

23:02

of this scale you are. How

23:04

do you organize a

23:06

distribution platform so that it works for

23:08

the fund managers doing what they're doing?

23:11

We run a general sales force, which

23:13

I believe is the right way to

23:15

really get proper scale. We challenge

23:17

ourselves all the time is having a specialist sales

23:20

force the right way to go. Just

23:22

very difficult to get operating leverage and

23:25

that scale if you're doing that because

23:27

every asset class, if they want

23:29

to be in every region and they want to be

23:31

in all the countries we are, that gets pretty expensive,

23:33

candidly. So we have run a

23:35

model where we have a generalist sales

23:37

force and then behind that we have

23:39

client portfolio managers who are really the

23:42

experts and the liaison between the

23:44

investment teams and sales. But

23:47

I think one of the questions is, how

23:49

do you make sure that you're serving all

23:51

the people that you have? Because they're inherently

23:53

and it's healthy at the right level, there

23:55

is friction between sales and manufacturing if you

23:57

want to look at that way. I'm

24:00

not getting enough sales time or no one's selling

24:02

my product or my product's not selling as much

24:04

because you're paying attention to someone else's product. That's

24:06

a balance. I want a little bit of friction.

24:08

I want a little bit of challenging to be

24:10

like, hey, maybe we can do better but it's

24:13

all part of making sure your culture is

24:15

there, that we're listening to one another, that

24:17

we're being transparent, that sales is sitting down

24:20

showing the time that they're spending not only with

24:22

a particular team's products but all the products.

24:24

Let's show what we are doing. Maybe we are

24:26

spending more time somewhere else. More

24:29

importantly probably than that even is, what

24:32

is the feedback we're getting from clients? Let's

24:34

not just take that and keep it

24:37

to ourselves but let's go give feedback

24:39

to our portfolio manager and say, look, this

24:41

is what they think we're doing great. Actually,

24:44

this is what we're hearing again and again that we need

24:46

to improve on. It's really looking at

24:48

it as saying, you are all part

24:50

of this team. There is one bearings approach

24:52

to this and it's a rising tide.

24:55

We're certainly seeing that accelerate as a

24:57

trend. In your case, it started on the

25:00

insurance side, on the others buying into insurance.

25:02

What's so special about the insurance assets

25:05

that have made that so desirable for asset managers?

25:08

I think there's a couple ways you look at it is, insurance

25:11

companies have an existential need

25:13

for asset management capability.

25:15

There is a symbiotic relationship between

25:17

the two because they take their

25:20

premiums in and they need

25:22

to invest those prudently to be able to

25:24

not only meet the claims but hopefully provide

25:26

a return to, in our case, whole life

25:28

policy orders. In many cases,

25:30

it's a stable form of capital

25:32

which allows asset managers to grow

25:34

their business because it is

25:36

more stable than going with some other forms

25:39

of capital to do that. I think because

25:41

there is a natural need for the

25:44

capabilities within an insurance company,

25:47

it helps the asset manager because

25:49

it's a more stable, longer-term form

25:51

of capital. It makes a very,

25:53

very nice relationship to build out

25:55

capabilities with the purpose of then

25:57

showcasing those capabilities to other firms. parties

26:00

and I think that's a

26:02

very nice to

26:23

set a strategy that is better

26:25

suited what

26:30

areas of excellence we have and get behind

26:32

those and so those capabilities are really going

26:34

to be on unique

26:37

originated assets, middle market lending, you're

26:39

originating things on your own rather

26:41

than them being syndicated out to

26:43

you. Real estate lending is the

26:45

same type of thing infrastructure lending

26:47

business, same type of thing. Portfolio

26:49

finance side where we're doing GP

26:51

lending and NAV lending those are

26:53

originated things that's where we're

26:55

investing dollars and that's where we're going to

26:57

see expanding anything that

27:00

can be directly originated in his

27:02

unique product for our clients not

27:04

only MassMutual but for our other

27:07

clients. What are

27:09

you hearing from clients about

27:11

concerns in the changing landscape

27:13

geopolitical landscape economic landscape inflation particularly

27:16

as it relates to some of

27:18

those originated yield

27:21

the type products? The

27:23

biggest risk long term for everyone is

27:25

it should be just losses credit losses.

27:27

If you don't get the underwriting side

27:30

of things right your interest rates obviously

27:32

have a mark-to-market impact on certainly longer

27:34

term liabilities. What we have

27:36

seen more and more with clients just

27:38

asking for is where is

27:40

the alpha generation coming from and if

27:42

you look at the evolution of the

27:45

industry it used to be

27:47

alpha could really be generated beating the

27:49

S&P by picking stocks. There are some

27:51

who still can do that it's hard

27:54

it's really hard most of our clients

27:56

are institutional and so they're investing through

27:58

cycles they're in the market. investing through

28:00

political changes. They don't have the luxury

28:02

of going all to cash because they

28:04

do have liability streams. So

28:06

they're really looking for us to how do you

28:09

mitigate risks in a changing

28:11

geopolitical and a changing interest rate environments.

28:13

You can't eliminate it. You're always

28:15

going to have some of it. But if

28:17

you can find ways to

28:20

get premium from either illiquidity

28:22

or premium from complexity on

28:24

assets that you're originating without

28:26

taking additional credit risk, that's

28:28

the sweet spot. And that's really what we and I

28:30

think others who are in these type of spaces are

28:33

looking to capture. Have you

28:35

thought about the shift that traditionally,

28:37

heavily public markets on the fixed

28:39

income side to increasing private assets?

28:42

I want to discount how important it is for

28:44

us to have a core liquid fixed income business

28:47

that we do. It's very

28:49

important to maintain that and we

28:51

continue to expect that to grow.

28:53

But there also are emerging and

28:55

evolving markets in other asset classes

28:57

that are now candidly just taking

29:00

from the public markets. It's

29:02

become more apparent really in some parts

29:04

of direct lending. The large scale direct

29:06

lending is really starting to bump in

29:08

a little bit more towards the syndicated

29:10

lending spot of things. We tend to

29:12

traffic more in the lower middle markets.

29:14

We haven't seen those forces coming together

29:16

that much. But we

29:18

want to be a part of all of it. Despite

29:20

how much the exposure

29:23

I will say on an insurance company's

29:25

balance sheet to private assets, it's still

29:28

largely liquid assets. We

29:30

still want to maintain those capabilities. We have

29:32

to maintain those capabilities and we have to

29:34

be able to provide outperformance for our parent

29:36

company and our other clients if

29:38

we want to be the service provider for all of

29:41

that. We want to be able to sit in front

29:43

of clients and say for the

29:45

most part, if you want to come into fixed income

29:47

or debt, we can be your solution

29:49

for all of it. You've already taken

29:51

this a long way in the eight years since

29:53

this roll-up came together. If you look out another

29:55

eight years, what are

29:57

the goals that you're ascribing to achieve? It

30:00

used to be the topic of do you have enough

30:02

scale? Scale is the one that people always talked about

30:04

and scale a few years ago was a trillion dollars.

30:07

My approach to that is I

30:09

think business model dictates what

30:12

the definition of scale is more than

30:14

AUM and dollar amount. You could have a

30:17

trillion dollars and that's not enough scale or

30:19

you could have 50 billion and have plenty

30:21

of scale. So your business model will really

30:23

dictate that. So I have never tried

30:26

to say this is a certain number that we

30:28

need to get to and it was

30:30

interesting and I'm not sure how well this was always

30:32

received but when I was asked the question of how

30:34

much you're going to grow next year, well what's the

30:36

market going to grow? I just want

30:38

to outpace the market and gain market share. So if

30:41

the market is flat and I grow 2% then we've

30:43

done well. If the market shrinks by

30:45

20 and we shrink by 5 we've killed it. If

30:48

the market goes up by 20 and we've gone up

30:50

by 15 we've underperformed. So

30:53

that's always been our day-to-day focus of how

30:55

we're doing it but we are hopeful that

30:57

we will be able to find an acquisition

31:00

that we can make that will increase our

31:02

capabilities. I will continue to do the

31:04

smaller ones but I'd love to see something that fits

31:06

strategically with us that was larger in scale. I think

31:08

we've put the business in the right spot to be

31:10

able to do that. It's got to fit culturally

31:12

and strategically rather than just doing it for the sake

31:15

of size but we would love to do that and

31:17

I would say in the next five years I would

31:20

probably be disappointed if we hadn't done something that

31:22

was significantly increased the size of

31:24

the bearings. What does

31:26

that process look like to find

31:28

and work through your next big

31:30

acquisition? It's at times exciting

31:33

and at times a frustrating process because you

31:35

can think you have something going and then

31:37

the person you're pursuing just isn't

31:39

interested in you. It's like dating. We

31:41

look at people, we spend a lot of time looking

31:43

at the industry, looking at other competitors

31:45

presentations in terms of earnings if they're public.

31:48

How do they think about their business? What

31:50

is their strategy? How are they going? Would

31:52

that fit with ours? Is their culture similar

31:54

to how we do things? Then you narrow

31:56

it down to a group and maybe it's

31:59

actionable or maybe Maybe it's not but we don't

32:01

have anything in the pipeline right now.

32:03

We're constantly looking and we're constantly open. So

32:05

folks are listening and they're interested, give us

32:07

a call but we won't do it for

32:09

the sake of doing it. We've sat out

32:12

of large-scale consolidation over the

32:14

last several years. Some have

32:16

been incredibly successful, some have struggled.

32:18

I think if you get away

32:20

from the strategic fit and

32:23

then the cultural fit without a

32:25

strong plan for integration, these can be tough

32:27

because again, it's all people and

32:29

people can leave if they don't like what's going

32:31

on. So it's hard, very hard. And

32:33

alongside of all the activity you're doing, as

32:35

you look at your own growth as a

32:38

leader of this organization, where are the areas

32:40

that you're most excited to explore

32:42

and get better at? I

32:44

love the strategic side. One of the

32:46

other things I've got really good advice

32:49

on early on in my role

32:51

here was give yourself

32:53

time. There's a lot of demands for

32:55

the calendar. Make sure that there's white space.

32:58

Make sure that there's time to think. Make

33:00

sure that there's time to think big. Make

33:02

sure there's time to come up with ideas that people look at

33:04

you like you're crazy. I love that aspect of

33:07

it and I think that is really my job is

33:09

to be thinking in the next five

33:11

years, where do we want to be? Me

33:13

challenging my leadership team and my leadership

33:16

team challenging me, okay, we're going

33:18

to go down this path or we're going to actually

33:20

get out of this business. That's hard.

33:22

I think I've gotten better at that component

33:24

of it. Long way

33:26

to go and I'll never have it figured out. That's

33:28

for sure. That's the exciting part of

33:31

every day when you wake up is you're learning

33:33

something new and if you have a level of

33:35

self-awareness, you know you always will have a lot

33:37

of things to learn. But I love that aspect

33:39

of it. Great. Well, Mike, I want

33:41

to make sure I get a chance to ask you

33:43

a couple of closing questions before we wrap up here.

33:45

What's your favorite hobby or activity outside of work and

33:47

family? I love to fish. I

33:49

grew up on the Gulf Coast of Florida.

33:51

I used to love the saltwater fish and

33:53

now I live close to the mountains

33:56

of North Carolina. Now I love the fish in the

33:58

streams. We catch fish here in North Carolina. a

34:00

lot in the streams that we would have used

34:02

for bait in Florida, a smaller fish. I

34:04

spend a lot of time on airplanes. I spend

34:07

a lot of time indoors and I really cherish

34:09

the opportunity to be outside and I'm fortunate that

34:11

my wife and my three boys like to fish

34:13

as well or maybe they just like to tolerate

34:15

fishing with me but I don't have to sacrifice

34:17

time away from them to do what I love

34:19

outside of work. What's one

34:21

fact that most people don't know about

34:23

you? I am an

34:25

exceptionally early riser. My day starts

34:28

usually before 4 a.m. and

34:30

I go to bed earlier than my 12-year-old

34:33

at 8.30 if I can. That

34:35

is the time I can think. That is time when

34:37

it's quiet. That is just the way I'm wired and

34:40

folks will get emails from me knowing that they

34:42

don't need to respond until a more civilized hour

34:44

but I am very much an early riser. That's

34:47

just when I can get my best thinking done.

34:50

What's your biggest pet peeve? Indecisiveness

34:52

especially when there's clarity. When there's clarity, when

34:54

we know the answer, we know what we

34:57

should be doing or we think we have

34:59

a pretty good indication. The

35:01

reluctance to make the decision because it's

35:03

quote-unquote hard really is one that I

35:05

struggle with. I think leaders in general

35:07

and I at times too take too

35:09

long to make the actual decision that

35:11

we know what the answer is. So

35:13

it's one that I know my

35:15

leadership team knows frustrates me to death and we're all

35:17

working on it together. Which

35:19

two people have had the biggest impact on

35:22

your professional life? Absolutely

35:24

for sure and this is an individual

35:26

who wasn't in my working career. It

35:29

was my youth soccer coach and what

35:31

he taught me really early on

35:33

was no one

35:36

is indispensable. No one is

35:38

that important. As a teenager, I was

35:40

pretty pleased with myself at times and

35:42

that level of showing me that

35:45

we are going to be successful or

35:47

fail as a team, not as an

35:49

individual has resonated with me

35:51

through my entire career and that's where you

35:53

hear the phrase confident humility. He

35:56

was the right person for me at the right time

35:58

and that has just stuck with me. forever.

36:00

I've always been a part of successful

36:03

situations when it's a team-based approach because of

36:05

that. It is just something that I am

36:07

much more comfortable with now. It

36:10

is something that I think is better suited to my

36:12

skillset and folks have asked, how did you get to

36:14

where you are within bearings? I stepped

36:16

into a situation that had a cultural and

36:18

a mentality and a philosophy that fit where

36:21

I was most comfortable and I think if

36:23

I had been in other situations probably wouldn't

36:25

have had the degree of at

36:27

least we'll say corporate success that I've had. So

36:29

there is no question Jerry Lancaster

36:32

was his name. On a slightly different note, the

36:34

partner that I worked for at PwC on the

36:36

tax side was only for a year and a

36:38

half. But the level of compassion

36:40

and care that he showed to his team

36:42

was really an element that I just was

36:46

enamored with. It's been 25 years since

36:48

I've worked for him. I still get a call on my birthday. It's

36:51

just that level of thoughtfulness and

36:53

it just really resonated with me of how

36:55

important that was to get that phone call

36:57

from him every April 4th. It's

36:59

those little things that I picked up that

37:01

really I think I hope have taught me

37:03

and given me things that made

37:05

me a better leader than I probably otherwise would have.

37:08

What's the best advice you ever received? Probably

37:11

two things. One, don't take yourself too seriously.

37:13

Just don't. We all are funny individuals if

37:15

we take a step back and are able

37:17

to laugh. But really as a

37:19

career and I try to give this advice to

37:21

younger individuals start, if you don't enjoy

37:23

what you're doing, where you're doing it

37:26

or who you're doing it with, get out. Because

37:29

if you have that intellectual curiosity and

37:31

love what you're doing, you're going to

37:33

be better at it. You're going to be

37:35

a better at that trade. All

37:37

of us will be better off at whatever

37:40

we're doing if we're happy, if we're content,

37:42

if we enjoy showing up each day rather

37:44

than doing it for the wrong reasons. And that was definitely,

37:46

as I mentioned in my early career with accounting, I wasn't

37:48

really loving it. I loved the aspects of it, but I

37:51

wasn't loving it. That had two of the three. I loved

37:53

where I was doing it and who I was doing it

37:55

with, but didn't love the what. And

37:57

so I said I got to go do something else. It's

37:59

pretty simple. Born sound advice but wow.

38:01

So simple most of his phone heated

38:03

that often. Hi. Mike Last one. What

38:06

life lessons have you learned that you wish you

38:08

knew a lot earlier in life? And

38:10

nobody has all the answers I wish earlier

38:12

on. Certainly. Years ago. Unfortunately, I

38:15

had enough mistakes along the way to know

38:17

this. When I got to the Ceo robots,

38:19

no one has all the answers and no

38:21

one should be expected to in asking. In

38:24

Schilling, a level of vulnerability for things that you

38:27

don't have a skill set is perfectly fine, reasonable,

38:29

and actually should be expected by all of us.

38:31

He talked to somebody now is as I got

38:33

all the answers. He. Should be worried. I.

38:36

Learned that early on in my career with

38:38

enough mistakes and failures to save them before

38:40

I make this decision quickly I should ask

38:42

somebody but I think that's definitely one that

38:44

is Helped me along the way to grow

38:46

faster than I probably would have brought. On.

38:49

Thanks so much for sharing this incredible

38:51

story of a long history and us

38:53

more recent explosion affairs. Well said. Thank

38:55

you for your time! Really really enjoy

38:58

the conversation. I appreciate the opportunity to

39:00

speak. Thanks for

39:02

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