Charles F. Lowrey, an architect by training, designed a career path that placed him at the top of Prudential Investment Management in 2008, just as the foundations underlying global markets were crumbling. Despite a steep learning curve, Mr. Lowrey said his firm has emerged from the market turmoil stronger than before, scooping up investment teams and executive talent along the way, and attracting strong inflows now on the strength of resilient investment performance. And if the present looks good, Mr. Lowrey predicts his firm — backed by the capabilities of its parent insurance company — will be in an even stronger position should clients close their current funding gaps and get into position to offload their pension liabilities.
How did an architect become the head of Prudential Investment Management? It's a long story. I started out as an architect, had my own firm in New York for four years, and then went back to business school.
Why business school? I had to learn something about business in order to run (my) own firm. Secondly, I decided that I wanted to disintermediate clients, (who) had a way of changing your designs. I thought if I became a developer ... I could actually build what I designed. ...
However, I went to work for Goldman Sachs' real estate investment management banking division between my first and second year, for my summer job, (and) I liked it very much. I thought maybe I'd veer off into investment banking for a while, before coming back into architecture. After business school, I went to J.P. Morgan, and a year turned into 13 years.
Why not return to Goldman? I liked Goldman very much, (but) they had 140 people — a well-oiled machine — and J.P. Morgan was just starting its real estate investment banking practice, with fewer people and, I thought, greater opportunity to come in on the ground floor of something. It turned out well. ...
Is your architectural background just something interesting to mention at a cocktail party, or has it proved useful in your current job? I met my wife, who was also an architect, so that was one of the handier things I did. But the study of architecture teaches you a way to think, teaches you process, to think holistically. In business school, some people in my study group were McKinsey, Bain, investment bankers. They'd come in and smoke would start coming out of their computers, while I was still trying to figure out how to turn mine on. I would sit there and say, "That's really interesting analysis, but it's not the right question to ask. Let's take a step back — think about what it is we're trying to answer instead of just diving right in.' Architecture allows you to zoom in and out, it teaches you how to simplify. That training, I think, has served me well.
Tell me about Prudential Investment Management's architecture, which seems to have separate building blocks — a multiboutique structure? Yes and no. What we try to do is have one block in each segment — a very clear segmentation of responsibility, by design — (with) each group focused on what they do. It is, I think, a much clearer way to approach clients.
Could that make you a provider of a la carte choices in a market looking for holistic, flexible partners to provide asset allocation oversight for entire portfolios? For that, you need to take a step up within Prudential, to the Strategic Solutions Group, outside of the investment management group, that will go talk to clients about various issues — duration management, buy-ins and buyouts of their liabilities, (combining) retirement abilities, insurance, annuities, investment management capabilities. They're the one that will take all that and put it together. I think we're very well positioned to provide strategic solutions to our clients. But investment management is one part of that, (not) the only part.
You took the helm at investment management just over two years ago. What timing! Actually it was great timing. There's no better way to know a business than to begin to manage it through a crisis. I had to do a deep dive very quickly in the businesses, get to know them in fairly granular detail. Fear is a wonderful motivator, and I learned a tremendous amount more than I would have otherwise had to by virtue of this.
What trends are you gleaning from your talks with clients? Institutional investors are obviously concerned about the deficit in their funding ratios ... how to make up the difference. If they get to 100% again, they want to immunize, put it to bed, but they have to get there first. To an extent, they're barbelling — taking some out of equity and putting it into fixed income — but also moving more into alternatives. On the public side you're seeing some states try to deal with that; you can either increase contributions, raise taxes or lower benefits ... that's what they're all groping with, figuring out ways to close the gap. Not an easy environment.
You've echoed (BlackRock Inc. CEO) Larry Fink, noting that clients are looking for fewer money managers to work with. In that environment, can you compete with a BlackRock? From what we understand from our clients, they're not looking for one partner — they're looking for fewer partners. ... (Mr. Fink) may have a larger platform that may offer more, but that doesn't mean that our platform isn't significantly large enough to be one of the preferred providers. We can provide products across a fairly wide range, and (provide) strategic solutions in way that many firms can't, because we have the retirement aspect, we have the actuaries. So we can come in and look at things, provide buyouts and buy-ins ... do a whole variety of things as an insurance company that others can't. So we are in a different, and yet unique, position to provide clients with a set of advice and tools that many other firms can't. I think we're plenty large and broad enough to be able to do that.
So your insurance muscle is an advantage for the growing decumulation trend? It could well be. We're in a unique position to go in and buy liabilities — the pension assets of a corporation. Most people can't do that. They either don't have the capital, they're not big enough or they're not equipped to value the liabilities; it's not their business. If we did that, then obviously that would inure to the investment management company's benefit because we would manage those assets. So there's a unique partnering between, say, the retirement group and our group and other groups, the strategic solutions group, in terms of providing the investment advice necessary, along with the actuaries, in order to evaluate a company's liabilities and make an offer for them.
You're saying if you did that, or you are doing that? It's certainly part of our strategic plans. ... This is common practice right now in the U.K. There are some regulatory issues in the U.S., and also it's very difficult right now in the lifecycle of a pension fund, if you're 80% funded, to have somebody come in and buy out your assets, because you have to make up the difference and more. But are we having significant strategic dialogues with people? Absolutely.
So if we have three or four years of strong gains? This is a business that's ready to go. Absolutely.