Face to Face: Wellington's Jean Hynes pulls back veil on firm, health care and market trends

Persistent volatility in global markets has triggered a tidal wave of active management strategies, which brought Pensions & Investments to talk to one of the best in the industry —Jean Hynes, CEO of Wellington Management, one of the world's largest independent investment management firms with $1.1 trillion in assets under management as of June 30.

P&I sat down with Ms. Hynes, the first woman to hold the title of chief executive at the Boston-based company, to discuss Wellington's active management approach and how artificial intelligence is playing a crucial role in health care and biotech. She is a portfolio manager on Wellington's health-care team, which manages more than $60 billion — including the over $48 billion Vanguard Health Care Fund, one of the world's largest dedicated health-care funds, which she has managed since 2013. "If we can do our job and deliver 'alpha,' which we've done now for almost 100 years, if we can continue to attract talent and deliver that 'alpha,' then we'll have a very strong place I think in our clients," Ms. Hynes said.Questions and answers have been edited for style, clarity and conciseness.

A: There are two reasons. I would say talent and then clients. How do we help our clients? So the first one, in the 2020s, it's hard to attract talent all over the world if people don't know who we are. And I just had my 32nd anniversary at Wellington, and back then we were really a Boston-based firm and everyone in Boston knew us. But as we expanded globally, people in London and Hong Kong, they didn't know who Wellington was. And so I would say over the last five years, part of it is telling our story so that we can attract talent. And I will tell you so many people have said, "Well, I listened to that podcast or I listened to that interview and that made me want to decide to come to Wellington."

Then second of all, and very importantly, it's how our business has changed. We are growing in the wealth market with our clients. We don't go directly to retail, but we work with our clients and we want to help them. And what they tell us is that it's easier to help them if people know what the Wellington brand is and what it stands for. And for us, that means deep research insights. So very true to who we are. But those are a few of the reasons why we've gotten out of our comfort zone of having a very low public profile.

A: There are two big trends in the health-care industry. The first one would be what's happening in biology. Ten years after using genetic sequencing at deep levels, the pharmaceutical and the biotech (sectors) and academia now understand biology at levels that we didn't even understand three or four, even five years ago. So we're having a biology revolution, immense amounts of data and insights into what causes diseases. The other big trend in health care is using data to both lower the cost of delivery of health care as well as provide better outcomes. So that's been underway, particularly in the U.S. for the last decade with the onset of electronic medical records. You probably go to the doctors now and there's a doctor with a computer. That didn't happen before electronic medical records, which were just really started in the 2012, '13, '14 time frame. Both those are the two major trends in health care.

And then when you think about how AI could augment that, there are a number of use cases. AI in health care is early, but there are definitely a number of use cases such as radiology, using AI to help radiologists look at mammograms, for example. In drug discovery, places where there's large amounts of data, there's data sets that go back for 20 or 30 years with tens of thousands of patients. So how do you mine those for new targets and how do you mine those for new ways of going after chemistry? And then using data to lower health-care costs. So there's much more data now to show what is a high quality doctor. What do high quality doctors do? And if you can figure that out and then train doctors to become more high quality, you're going to get better outcomes and likely at lower costs. So that's how AI is going to help the health-care market.

A: It's been pretty steady. (Health care as part of) growth of GDP, for the last decade in the U.S. (has been) in the high teens. Elsewhere, it used to be very low in China, but it's growing as a percent of GDP as the health-care market in China has modernized. I wouldn't expect it necessarily to grow as a percentage of GDP, but I would expect it just to maintain. The real question is (around) the population aging around the world and as populations age, the volume of all medical services increases, particularly over the age of 75.

Will governments be able to keep the percent of health-care costs of GDP stable in the face of a rising elderly population? Or will the use of AI in these new drugs and new ways of delivering health care help lower the costs so that percentage of GDP stays normal? It's one of the biggest questions governments have in the next 20 or 30 years; how do I provide very good quality lower-cost health care to a population where a greater percentage is going to be over the age of 75?

A: We have the IRA (Inflation Reduction Act). Philosophically, you want a system where ... You want to incent innovation. If we didn't have innovation, we wouldn't have had the vaccine response, for example, a few years ago during COVID. There's so much happening in biology. So how do you incent the industry to really invest in that biology? The contract is that you get a certain amount of time to have your drugs patented, and that is where the balance is. This is when I think about, what is the social aspect of investing in biopharmaceuticals; drug companies philosophy on pricing should be, I want to have every possible person that has this disease to have access. So it's this balance between how big is the disease for ... It's really hard to price say an Alzheimer's drug at $100,000 because you'd really limit the amount of people that would get it.

But you can have a small disease and that price could be higher. There is no right price for drugs. But there could be a wrong price for drugs. So that's the philosophy I look at when I'm evaluating companies. Over the last 30 years the governments around the world are always trying to control drug prices. Actually, it's really the only part of health care that is easily controlled. It's much harder to reduce what you pay for doctors and what you pay for hospitals and what you pay for medical insurance. And so you're always going to have this balance between what drug prices are and what the governments and payers are trying to do to offset that.

A: I'll talk about ESG and then I'll talk about Wellington's approach to ESG. I think about my long history of investing; governance has always been important. What's the governance of management? What's the governance of the board? But now we name it. Back to our conversation about drug pricing. That's always been a part of the mosaic of whether this investment's going to work, how are they treating their end customers and how are they treating their vendors. Those have always been critical inputs to my investment philosophy.

I've been in the research department at Wellington for over 30 years, and what's the philosophy of ESG? Our philosophy at Wellington, it really is to be a very research-intensive organization that is looking at all parts of a company: what's going to drive revenues, what's going to drive margins, what's going to drive risk to the company? And I would put ESG right in there as part of something that we need to understand to value companies.We take a value-based approach to incorporating ESG into our mosaic of looking at a company or looking at an industry. It's part of the investment process. One of my observations is that ESG is very micro ... So it has a big macro concept, but it's micro. It's like what's happening at each of these companies? What's the materiality to this industry? We look at it from a materiality framework. So what's material to one industry is going to be very different than what's material to the health-care industry, for example. Our ESG analysts are highly collaborative and work with our sector teams that both look at equities and credit.

A: What is Wellington trying to do? We are an active management firm. Whether it's health-care investing or it's macro hedge fund investing or it's investing in our private companies, we're trying to figure out what the world's going to look like in one, three, five, 10 years. And so we are a knowledge-based insight business; that's actually at the crux of what we do at Wellington. I believe very strongly, and I think there's lots of data now to show this, that organizations that have more diversity of thought, more diverse perspectives will more likely get to those insights either faster or more regularly or more consistently about what the world will look like. And so philosophically, we believe having a very diverse team will provide more diversity of thought that will actually get us more perspectives and insights and knowledge. And ultimately higher results for our clients.

A: We have been in the private investing business officially since 2014 when we launched our first late-stage crossover private venture fund. The interesting part was really driven by a public equity growth portfolio manager who just recognized the trend that companies were staying private longer. Back in 2012 and '13 when he was really pushing this idea, it wasn't as obvious then, but he really could see that the number of companies coming public was at a much lower level. So we were missing opportunities to create value for our clients. So we did launch that first fund in 2014, and now that is on its fourth fund.

Over time we've expanded into other areas such as biotech, climate technology and investing in diverse founders. In the last year we've hired our first entry into private credit with our investment-grade private credit (strategy). So our philosophy on privates is to build it internally, attract great talent, and ask, where do we deserve to win? Where are our adjacencies? I just mentioned private credit. We have really strong public credit capabilities, so moving to investment-grade private credit fits right in. That's a very strong adjacency to our public markets.

A: Back in the 1990s when I started at Wellington, we were really a Boston-based firm. Almost all of our employees were in Boston, a few in London, a few in our Pennsylvania office. And over the last 30 years, and particularly over the last 15 years, we have steadily globalized the firm. And so I'll give you an example. I actually spent time in our London office in 2007 and 2008, and that was all because we had decided to globalize our investment platform. All our investors previously had been really in our Boston office and we realized that companies were being created all over the world.

And so we started in 2007 and '08 hiring in London and the next year in Hong Kong and Singapore and Tokyo. That has been this journey over long periods of time. Now we have about 30% of our employees and clients and assets in either EMEA or in Asia-Pacific. I would expect that to continue.