William Hunt, who took up the reins at SSgA in January, plans to bolster its active and hedge fund capabilities while sustaining a culture relying on analytic firepower instead of a ‘star system.'
A native son of Boston, William Hunt traveled a circuitous route to the pinnacle of State Street Global Advisors in a relatively short period of time. After SSgA hired him away from a job with AIG in Tokyo in 1994, Mr. Hunt remained in Japan in various capacities with the money manager and its parent, State Street Corp., before coming back to Boston in 2001 to look after the company's global operations and big institutional relationships. When SSgA CEO Timothy Harbert died of a heart attack last August, Mr. Hunt emerged as his successor.
Apparently State Street Corp. didn't mind that you had spent most of your 11 years with the company abroad. The opposite, I think. There's no question my background in Asia played a role in (State Street CEO Ron Logue's) thinking in putting me here. He has said publicly he wants 50% of our revenue to be non-U.S. based in the very near future.
How did you win SSgA's recent CEO sweepstakes? I think my experience outside the U.S. in building the business was one factor; the second was probably my experience at senior levels of State Street Corp. SSgA is very independent. I was born, sort of, into that culture. At the same time, I have also worked in a sort of CEO capacity for State Street (in Tokyo), looking across all businesses, how the pieces fit together, how to keep that independence of SSgA but leverage it across the company. I think that's one of the special skills that I brought to the equation.
Some people say your ties with State Street will help SSgA get needed resources; critics say you have to prove yourself as an investment guy. I built the investment management side in Japan and built the rest of (State Street's business in Asia) on the back end of that. My experience at the corporation puts me in a position to bring resources. I have the confidence and trust of the people around the table, including Ron Logue. At SSgA, my goal is to give more people a voice, flatten the organization and then develop a strategy which will sustain us and grow us.
How are you flattening the organization? By having more participation from different corners of the organization, less hierarchy, more direct communication. SSgA has always had those things, but I'm going to take it to the next degree. You know, Alan Brown's departure as CIO, for example. What I've put in place is three CIOs. With everything flowing through one person, you run the risk of centralized or individual decision-making. I'm going to get a broader array of inputs from three CIOs sitting down with a couple of different business heads than I will from one global CIO. I can get broader inputs, unfiltered, from more corners of the world, and I want that as an organization.
Did Alan Brown leave or was he pushed? He left. I was surprised. As an investment professional, I don't think there's anyone better.
Some pension fund executives have expressed concern about recent departures. SSgA has a very deep team; there's been very little turnover. It's just a question of getting to all the clients and communicating that with them.… We have a lot of stars in the organization, but we don't have a star system. We have a lot of people who can step up and do the job when somebody else steps away.
But isn't SSgA moving to more active investment management, where that will be less true? Well, yes, but no. We're expanding into the active space, but in a way that is leveraging our strengths. It's all highly quantitative, even in the alternative hedge fund space, (with) a level of disclosure and analytics around the risk parameters that you don't get from a traditional active or hedge fund approach … People with black-box approaches have gathered a lot of assets, but as institutional investors take a bigger role, that's our sweet spot, because they won't put all that money in high risk, highly leveraged approaches with few analytics around them. I can see a world where you have a core hedge fund provider, with a fairly improved return but not excessive, and then around that a series of more aggressive satellite hedge funds. We'll be that core alpha.… There are some really great people who could find a home here at SSgA, and I think over time, a "string of pearls" of those different managers that we grow with the organization can be a real benefit for our client base.
Will those hedge fund managers be part of SSgA's Global Alliance or part of SSgA proper? We're looking at that right now. We have the Global Alliance group; we have the long-short equity alpha strategies we've developed; we have market-neutral strategies. We're trying to figure out what is the right equation for our clients going forward. Most of the big institutional investors who started with funds of funds as a way to tap into the market are moving toward selective choices of alternative managers. What we bring to the table is rigorous testing. We can look at managers, put them through the paces, if you will; we can save institutions a lot of time by looking at 10 to 20 and then putting together a stable of the best.
In a fund of funds? They can package it in a fund of funds, they can do them separately with us, they can package them with ETF products — they can really do a lot of different things when they come to us, and we're finding that these different kind of bundled solutions are very attractive. Again, what we don't have yet is this string of pearls, if you will. We have a few products that emanated from our traditional approach, long short, market neutral, where we've been very successful; we've got the Global Alliance group of companies; there are a couple of other things in-between, internally; but we're looking to build a much more cohesive strategy.
Do you already have your blueprint? We're trying to figure out, out of all these good alternatives that we have, what are the best, and where we want to put our short-term and our medium-term efforts.… Those efforts are all going to continue and be expanded, it's just a question of timing and pace.
Rumor has it you're calling in your expanded management team from around the world. Yes, they'll be here on the 17th (of May.) There's nothing like bringing everybody together for a few days to get rid of misperceptions, to ground ourselves here in Boston. We'll have 70 to 75 people in that group from all areas, looking at all the challenges that we have. It's a strategy session, basically. Out of that will come, certainly, a better-focused approach with broader buy-in and broader participation. There are a lot of factors we'll be looking at for two days. It should be pretty intense.
A year ago, Tim Harbert said SSgA might look to acquire a hedge fund-of-funds company. Is that still the case? I think things have changed. Institutions we're talking to, who have experiments in the funds-of-funds world as a first entre into hedge funds, are moving away from that now, toward multiproduct or single-manager alternative strategies. That's why I think the idea of a string of pearls of managers is something that we would be able to do. But the idea of going out and buying a fund of funds, I think that time has passed.
How much hedge fund money does SSgA run now? I'd say it's about $2.8 billion. If things continue the way they are, I think that number will be tenfold in three to five years, maybe less.
Some warn of a hedge fund bubble. We're in a flux point right now because the rigor around the analytics is not what it should be. But with the dissection of beta and alpha, getting to a level of sophistication and transparency, there will be room in traditional asset classes, and new classes like commodities and others, to deal with far more assets. If you broaden it out, which is what we're trying to do, there should be enough room for a lot of money to flow in.
Can SSgA's culture survive hedge funds, with the high-fee superstars? Our challenge is to make sure we are able to sustain the culture. The culture is changing a little bit as we've done more in the active space, but I don't see us moving into the star system.
Is your approach in place? It's a work in progress, but I'm confident. We've talked with enough managers, hedge fund shops, if you will, and we've had enough talk internally that I think we can make it work. I think the market and clients are moving in our direction.