Chairman and CEO, Resolute Investment Managers
COVID-19 is forcing companies in all industries, including financial services, to reassess their businesses and plan for a future that looks much different than it did just a few weeks ago. At the same time, the recent market volatility has shaken up investment strategies and refocused attention on the role and value that active management can bring to a portfolio. Operating at the sweet spot of this crossroads is Gene Needles, Chairman and CEO of Resolute Investment Managers, a multi-affiliate asset management platform that has roughly $80 billion in AUM.
Gene, Paul Harvey’s quote, “In times like these, it helps to recall there have always been times like these” may no longer hold true. What are you doing to adapt to life in Age of COVID-19?
I am doing fine and the company is doing well, I’m pleased to report. Whether it’s the COVID-19 pandemic, the Great Financial Crisis, or the bursting of the tech bubble in 2000, I’ve learned that a CEO cannot afford to become frozen by the gravity of the challenge at hand. Employees, clients and partners have anxieties, and leaders need to temper that and try to see past the current situation. It is my goal that Resolute Investment Managers will be stronger on the other side of the pandemic. Change always creates winners and losers and I want us to be one of the winners. While I certainly don’t have it all figured out, I do know we have to avoid being paralyzed by the negative aspects of the current challenge.
The financial services sector has made great strides towards digitizing their operations and preparing for a more decentralized work environment. Despite this progress, how prepared are asset managers for the drastic work changes they’re suddenly faced with?
I can speak to our own firm and our experience with the partners with whom we work on a daily basis. The employees of Resolute Investment Managers, our parent company, and American Beacon Advisors are 100% work-from-home at this point and we made the transition readily. Each of our employees are equipped with a laptop, and we test our remote working capabilities every year, most recently in December 2019.
Our affiliate companies are similarly equipped, and close to 100% of those employees are working from home. We’ve also been very pleased with the transition that all our various partners have made to alternative working arrangements. This includes our fund service providers (e.g., custodian, accountant, transfer agent, etc.) and the sub-advisors to the American Beacon Funds. From our perspective, the transition has been seamless.
What are you hearing from your affiliate asset managers and sub-advisors about their confidence in the market’s ability to react to and handle the volatility we’re seeing?
Our affiliates and sub-advisors have confidence that our capital markets will weather this heightened volatility. However, success in this regard has required monetary and fiscal intervention we haven’t seen in 12 years. The recent rise in the capital markets suggests that investors have confidence that monetary and fiscal authorities will continue to do anything in their power to support the economy and stabilize capital markets.
We have been somewhat surprised by the speed and the magnitude of stimulus that has been injected. Our present-day politics are not conducive to coming to rapid agreement on multi-trillion-dollar spending packages, but that is what happened. If, however, volatility turns higher again (which is more likely than not), we are subscribers to the “stay the course” philosophy. There is an old saying from Peter Lynch that “time in the market is better than timing the market.” These are prescient words that are just as applicable today as they were when he first made the statement decades ago.
The massive dislocation in the markets is causing a lot of pressure on the entire financial landscape, especially smaller fund managers. Do you see opportunities to step in and provide capital/pursue acquisitions that can benefit both the managers and Resolute?
Our view is that achieving organic growth is and has been the most significant challenge for an asset management business of any size, and this view is unchanged by the coronavirus pandemic and associated market volatility. In fact, growth may become even harder to achieve going forward. Asset management businesses will experience the financial pain associated with reverse operating leverage from market declines, but that can be (and hopefully will be) a temporary challenge if and when asset prices reflate.
Even more painful, however, is the loss of client assets, and this pain can be permanent without the ability to attract new clients and open new channels of distribution. Asset managers play a role in the value chain and downstream from us are wealth management businesses that are also experiencing financial challenges. If the aftermath of the Great Financial Crisis repeats itself, then wealth management businesses will have to constrain their own costs, which means – in part – shrinking their product platforms thereby restricting distribution for second-tier asset management partners. Our own platform can be an attractive solution for exceptional asset managers that need a distribution partner while also maintaining their independence and unique culture.
What words of wisdom can you give to investors concerned about how to react to the current environment?
We just ended a bull market that is unlike anything I’ve seen in my career. It was not only a record bull run for its duration and cumulative total return, but also for its low levels of volatility. It is our view that volatility will return to a normal level and we will see the recent decade (especially the past five years) as unusually placid. If true, then active managers in virtually all asset classes will have more abundant alpha-generating opportunities than they had in the past decade.
Additionally, investors are likely to have learned that diversification and downside-protection are not cyclical investment tools to be used episodically. Because of the swiftness of this draw down, investors should be motivated to keep a degree of protection in their portfolios at all times. Somewhat ironically, our marketing theme for the year is “Navigating Volatility.” We didn’t predict how or when higher volatility would return to the markets, but we knew it was a matter of when – not if – it would happen. Since January, we’ve been working with our clients to help them prepare for higher volatility and navigate such an environment.
Gene L. Needles, Jr. serves as chairman and CEO of Resolute Investment Managers. He also serves as chairman and CEO of American Beacon Advisors and president of American Beacon Funds, and holds additional senior leadership positions with other organizations affiliated with the company. Prior to joining American Beacon Advisors in 2009, he served as president of Touchstone Investments, part of the Western & Southern Financial Group. From 1993 through 2007, Mr. Needles was with AIM Investments and subsequently Invesco (through the merger of AIM and Invesco), progressing from regional vice president to president and CEO of Invesco Distributors in 2004. In this role, he was responsible for distributing products that included mutual funds, exchange-traded funds, separate accounts, variable annuities, sub-advised portfolios, collective trusts, offshore funds, retirement plans and college savings plans. In addition, he worked as a vice president at Putnam Investments and MetLife State Street before moving to AIM. Mr. Needles received his B.A. in English from Iowa State University in 1978.