Face to Face: BNY Mellon's Hanneke Smits on markets, AI and increasing female leadership

Hanneke Smits joined the $1.91 trillion BNY Mellon Investment Management — which has seven affiliate managers — in 2020, against a backdrop of the COVID-19 pandemic and volatile markets.

She ascended to CEO of the parent company from affiliate Newton Investment Management, where she had been CEO for four years. Ms. Smits was CIO at private markets firm Adams Street Partners, a $54 billion manager, before that.

Moving to a traditional money manager from a private markets firm may not be an obvious choice — a theme that she said runs through her working life — but she said there are links such as the importance of long-term thinking, understanding investment culture, and the need to bring diversity of perspective to the table.

While Ms. Smits oversees the seven affiliates, she also has the support of the wider BNY Mellon Corp., with access to their operating platform, corporate functions and client-facing professionals.

In this Face to Face interview, Pensions & Investments sat down with Ms. Smits to talk markets, AI and women on boards. Questions and answers are edited for length and clarity.

A: Yes, I do. I did manage money for probably two and a half decades of my career, sometimes directly or as CIO. And it's a very privileged position to be in. But I have also enjoyed over time coaching others to run money. I've also enjoyed the client interaction that I continue to have. Now your conversation with clients is a bit different from when you're actually running their portfolio to when you're now CEO — some topics are different. But I think in these roles you have to be curious; you have to be curious about markets, you also have to be curious about what your clients need, right? And those conversations continue. So, I get my hunger for markets and curiosity satisfied through different conversations, and also through really celebrating actually my colleagues' success in running portfolios.

A: So we're in 2023 and we very much believe that rates will be higher for longer, inflation will be higher for longer, rates might not increase as much from here. But against that backdrop, I think there are a couple of things to keep in mind. It's likely that clients will stay in cash a bit longer; some may start to switch into fixed income, and I know we're not alone in this, but it does provide and will provide good opportunities for investors ... so it's sort of the counter trend to what we saw in 2022. But I also think this is an opportunity to really start thinking about thematic investing, thinking about strategies that provide income through either equity income strategies, which we offer, for example, through Newton or fixed income through Insight; but there are also still, in a targeted way, some excellent opportunities that you can find in growth as long as you continue to be selective as our firm Walter Scott has proven that they have been over the course of four decades. So, we see a number of opportunities. In the U.S., we also see the increase in trends in direct indexing — we're launching a new product between Mellon and Pershing in direct indexing that I'm very excited about. So, there are a number of things that I think clients will engage in and invest in, and capabilities that we're creating that will meet their needs.

A: Clients come to us for a host of different reasons. Firstly, because as you said, we do cover a whole wide range of asset classes, so they can come to us for different reasons. Increasingly, we're also having conversations with them about risk management, rebalancing portfolios, how to do that, what to do about the old multiasset portfolio, do they need to rethink how they create multiasset portfolios themselves or through capabilities that we can provide? And increasingly, it's also about information: clients want more information. So, we've been investing in our distribution team into technology that actually gives clients more information directly available to them. One tool that we have is what we call an "asset visualizer flow tool," which can compare their portfolios against flows in the market. We also provide a tool that's called "inside the fund manager's head" where they can see, you know, short, snappy videos, maybe 90 seconds, from portfolio managers that run their money about topics that are very front of mind, which sort of help them, I think, stay informed and possibly make decisions.

A: I think there are two aspects when we talk about AI. Actually, AI is something that in the firm as a whole is quite a big topic — we very much embrace a learning mindset and we actually think that AI can be a great opportunity to bring value to both our clients as well as our shareholders. We've actually established a global digital R&D hub in Dublin, which is our latest example of our commitment to pursuing practical innovation. This is being more led by the enterprise as a whole, but some examples that are coming out of this — and I'm seeing this in working with my colleagues across the enterprise, because we're a client of the asset servicing business — so for example, one of the things that's being worked on is predictive analytics. So you can predict outcomes, for example, around trade settlement … or where market flows are going based on the data that we see. As we touch 20% of world's assets, there's a lot of data that we can use. We're working on something that's called "document understanding," which can extract data from complex documents in ways that we've not been able to do before and will replace, to some extent …the need for us to have humans to actually process complex documents. And from an investment management perspective, we remain of the view that AI can be very supportive of the judgment that does need to take place in the investment process. I think Newton in particular is using some of the AI tools in its process, but it's really helping the portfolio managers and research analysts to some extent to filter out noise, to see some trends that they might otherwise not see, but we haven't quite seen it yet replace human judgment.

A: We've always used our market leadership position to drive change — it's really what active management is about. But it's also … about stewardship, it's about how we manage money for our clients. And all of our investment firms do this in different ways. So Newton had, I think, just under 200 engagements with issuers on ESG considerations last year, just with a particular focus on encouraging improvements in sort of governance and best board practice, diversity, are some of the topics that come to mind. Insight had something like 1,000 engagements with debt issuers over the course of sort of the last 12 to 24 months and 80% of those included some form of ESG dialogue. And it's really important to highlight this because often ESG comes up in the context of equity managers, but when you're like Insight, when you touch so many debt issuers, it's also important to engage with those issuers, and they do. Now for Walter Scott, 2021 into '22 was a year where they focused very much on diversity on Japanese boards as they have a bit of exposure to those companies. And I also see this — as you know, I'm also global chair of the 30% Club﷯, so I see this through a different lens as well — but just 15% of Japanese board members are women. So, Walter Scott have been in active dialogue with boards in Japan to see if we can't drive change to lead to better outcomes. So it is, it's something we take very seriously. It's something that we do as part of the day-to-day and it's very much integrated into the investment process and into the stewardship.

A: So look, on one level, much has been achieved by the 30% Club … since its launch in the U.K. in 2010, it got to 30% in 2019, and actually got to just over 40% by the end of last year. So to some extent, you might say to me, well … what's in it? But I think there are a couple of things. First of all, we reached that target for women on boards in non-exec roles, but we're nowhere near when it comes to executive roles — we have less than 10 female CEOs in the FTSE 100, and that … is true for the S&P 100 as well. We have achieved the 30% goal of women on boards in five of the 30% Club's chapters: in the U.K., U.S., Ireland, Canada and Australia. But for me, it is about where we call "beyond the boardroom." So more in C-suite, and actually greater consistency in our chapters around the world because it's only those five chapters that have achieved that first goal of women on boards. And then, finally, it's also about all women, so it's thinking about intersectionality, thinking harder about also ensuring that, say, women from different ethnic backgrounds are considered for board positions or women from the LGBTQ+ community, for example, as well, are important to be considered, just to name two.

A: It's all the way through the pipeline. Well, it's really about focusing on the (executive committee) levels, EC minus one, minus two, and making sure that we support women throughout their career. Look, I wish that we didn't need the 30% Club, but we still do need the 30% Club and we need it in many, many countries around the world. I never had thought, having graduated from London Business School in 1992, this would be a role that I would be taking on in 2023, but here we are.