In his prior life as an investment banker, Gregory J. Fleming had a hand in some of money management's biggest mergers and acquisitions, including the 2006 sale of Merrill Lynch Investment Managers to BlackRock Inc. His stature in the world of M&A left some wondering if his appointment last year as president of Morgan Stanley Investment Management augured a period of frenetic deal making at the firm. Hardly. Mr. Fleming spent his first year at MSIM blocking and tackling — revamping the firm's sales and operations lineups to complement what he argues is an array of talented investment teams there, capable of delivering strong organic growth in coming years. And while a number of top investment banks opted to sell off their asset management affiliates in recent years, Mr. Fleming predicts Morgan Stanley's global brand and client focus will allow MSIM to beat the odds and flourish under its parent's umbrella.
As a veteran M&A deal maker, was accepting the helm of Morgan Stanley Investment Management an easy choice, or did you have to think about it? One of the reasons I took the job is that it's investment management — a business I have a long history with. If you do it well, if you set up a great culture, a firm with continuity of leadership and vision, you can be serving your clients, investing their money, doing a good job for them year in and year out. Done well, it's a wonderful business. So I came to Morgan Stanley in great part because of the opportunity to run an investment management business.
What about the relative charms of heading a firm embedded in a larger financial conglomerate, as opposed to an independent money manager? I'd worked from an investment banking standpoint on a number of deals, known some of the top companies in the business for 15 or 20 years, whether it be a Capital Research or a T. Rowe Price. That experience was very helpful for me, in wanting to take the job. (Parent company) Morgan Stanley under James Gorman is very focused on client businesses across its three primary businesses — the institutional securities business; Morgan Stanley Investment Management, which I lead; and Morgan Stanley Smith Barney, which as of a few weeks ago I've taken on the leadership of. The ability to run and own a high-quality investment management operation within an organization where client service is really what we're all about, is very high. Morgan Stanley has a great global brand — you can go into a meeting all over the world and put the business card on the table, and it says Morgan Stanley or Morgan Stanley Investment Management, everybody knows who it is. They'll sit there, and they'll listen to you, with a degree of intent and seriousness because of that brand, 76 years in the making. An investment management business in a company with a brand like that, with a CEO who's put in place, specifically, a client-focused strategy across the whole set of his businesses — that's an umbrella within which an investment management organization can flourish.
Examples of money managers which have flourished within financial conglomerates in recent decades are few and far between. There aren't a lot of positive precedents. But I don't know that there are a lot of precedents of a company with Morgan Stanley's brand, with a CEO who's staked his vision and reputation around clients.
But in concrete terms, what sets Morgan Stanley apart? I just kicked off our investor conference for major clients — $1 trillion of assets represented in the room. Average tenure with MSIM? 14 years. That's the kind of history and track record (MSIM has). One of the things I said to that group: MSIM is core to Morgan Stanley, and we'll continue to invest in it. I said my job at MSIM is to have continuity of vision and leadership, because the best asset management companies know what they are, stick to their knitting, year in and year out, doing what investors want them to do — outperforming benchmarks, providing appropriate service, having operational excellence around it. That starts with consistent vision and leadership at the top, so my job is to keep it in place here, to have continuity that works for investors.
Are you a new sheriff in town, or is there more continuity than change in your role? I'm clearly a new sheriff. I just joined last February. But there's been consistency in key parts of the organization over time. In our long-only business, we have senior portfolio managers and their teams who've been managing assets for 10, 15, even 20 years — a lot of continuity on the investment side, which is actually the best place to have it. In investments, you can't go any faster than the track record and the passage of time. So a new sheriff, but underneath, a lot of continuity, which is why I'm able to stand up at that conference and say average tenure: 14 years. But there are two other legs of the stool: one is sales and client service, and the third is operations. We want to have excellence across all three. The other two are areas that I've been investing more in, because during the crisis, and after, they were relatively underinvested in. So I've been focusing (there, but) not to exclusion of the investment side. We just hired a portfolio manager to our emerging markets team. We're looking at adding a value (equity) capability in the U.S., pretty far down the track on that. We're looking at hiring in high yield, where we don't have the capabilities that we'd like to have. So we're also looking to build out on the investment side, but we had a lot of strength there: in emerging markets, international equity, growth equity; within fixed income, in emerging market debt, our public real estate securities business.
When you joined MSIM, a lot of people looked at the firm as a “fixer-upper.” You don't sound like you'd buy that characterization. Look, MSIM had come through some difficult times, with some changes in leadership on a relatively frequent basis. I'm not going to understate that. My point is, some of the things that are critical for an investment management organization, and its ability to function and generate momentum relatively quickly were still in place, despite those challenges. Had we not had some of those strengths, the ability to develop momentum would be more than a four- or five-year time frame. Getting MSIM to where we want to get MSIM is a three- to five-year effort across the business. So there were challenges. But there were real underlying strengths that I've been able to leverage and reinforce, and then hire and build, particularly in sales and operations, around it.
As an investment banker, you helped midwife a number of big, transformational deals. As MSIM's president, your appetite appears limited to targeted hires and liftouts. Absolutely. We're building a culture across MSIM. Major transactions are best done when a consistent culture, leadership team, vision has been in place for a long time. I have this leadership team that has come together on a relatively recent basis. We're articulating our strategy, internally and externally, and we want to build on that. And we also have significant opportunity on an organic basis. ... Growth is a significant priority for us, but against the backdrop that what we need to do every day is manage investors' money well, and then the growth will take care of itself.