A clarion call to action: A message from Michelle Seitz, Chairman and CEO
As I reflect on the last four months relative to my 30-plus years of experience with massive disruptions, the COVID-19 pandemic combines facets of them all. The heart-pounding drop of 22.6% on 19 October 1987, occurring mere months after I began my career managing money, abruptly woke us out of a five-year bull market slumber. The tragic events on 11 September 2001, and other global terrorist attacks left us fearing for our lives and altering our daily behaviours. The SARS outbreak in 2003 reminded us of the devastation that could be wrought by a pandemic, but it was regionally contained. The 2008 financial crisis revealed the darker side of a complex, globally interconnected world and the power of central bank interventions. Today, this crisis wrought by the COVID-19 outbreak has created public fear over lives and livelihoods, paralysed global economic activity, halted our daily routines, and stoked widespread market uncertainty. Wherever you call home, this pandemic has impacted every part of your life.
So far, COVID-19 has claimed the lives of over 350,000 people across more than 200 countries. Now, lost livelihoods - the human toll of the economic crisis - have become more acute. This crisis will reshape our social and economic future and the ways we work. We all miss the personal connections and the seamless globalisation that we once took for granted. We are adapting and, in many ways, learning to thrive with reinvention. We have visited many of you virtually in North America, the Middle East, continental Europe, the UK, and Asia, free of long flights and jet lag.
For 84 years, Russell Investments’ purpose has been to provide for people’s financial security. Every day in partnership with you, our 1,250 associates strive to fulfil this mission. Today, we are mindful that behind the headlines of corporate bankruptcies and high unemployment rates are human beings who, through no fault of their own, have lost their jobs and lack savings to cushion the blow. A recent Harris Poll by the National Endowment for Financial Education found that nearly 9 in 10 Americans say the COVID-19 crisis is causing stress in their personal finances. A financial security crisis once lurked on the horizon, with retirement gaps already bigger, on average 147%1, than the GDPs of most developed nations. Now it is one of the most urgent issues of our times.
Even before the pandemic, the World Economic Forum calculated that the retirement savings gap had reached US$70 trillion and would widen to $400 trillion by 2050.2 Russell Investments’ own research showed that over 75% of American households nearing retirement - households headed by people aged 55 to 65 - had virtually no chance of meeting their retirement income needs, despite an impressive 30-year upward trend in the markets.3 That is, conservatively, more than 35 million Americans in this 10-year age bracket, who are completely unprepared to fund their post-employment livelihoods. That was their dire pre-pandemic condition before a single stay-at-home order had been issued, before entire countries shut their doors for business, before companies issued mass layoffs and furloughs.
We exist to invest people’s savings. That is a profound responsibility, especially in times of crisis. We know that right now, you, as our partners in that mission, have greater needs than ever. And we know that a focus on the long term with fact-based, data-driven decision-making is imperative to manage through uncertainty.
Serving our clients, not selling products, is our priority. We are driving industry change and embracing reinvention - as we have consistently over the past 84 years of our pioneering history. And importantly, we continue to safeguard and equip our associates so they can fulfill our fiduciary duty to you.
Five years ago, we began strengthening our technology infrastructure to ensure that we are well-equipped to operate remotely and serve your needs in a virtual world. Now, as our 32 offices have seamlessly transformed into more than 1,250 home offices, we have executed with agility, determination, and constant collaboration. We will continue to ask smart questions, listen carefully, and execute with urgency. Our goal is to exceed your expectations - identifying and solving problems before you even know you have them.
As our senior team spoke with so many of you - from large global institutions to financial advisers - over the past four months, we were reminded of what is most important to deliver. A few takeaways:
- Flexibility and objectivity. We are fully committed to being your trusted, end-to-end investment solutions partner. As a fiduciary, our only goal is to relentlessly pursue your goals. We will continue to employ an array of implementation solutions including active and passive, liquid and illiquid, proprietary and sub-advised strategies.
- Creativity and innovation. A low-return market environment will challenge target returns and amplify liabilities. Thirty percent of global bond yields are negative. Declining asset prices and ballooning liabilities, due to an ageing demographic and historically low interest rates, have contributed to the most serious level of unfunded ratios in recent memory. Twenty years ago, the 10-year U.S. Treasury funded 80% of a pension fund’s target return; today, it funds only 30%.4 This return imperative requires tailored portfolio construction, total portfolio risk allocation, and access to the world’s best investment expertise in every asset class. We continuously weigh how to use beta, factors, and idiosyncratic risk to drive toward your desired outcomes.
- Bespoke solutions and quality service. Our services exist to strengthen your staff and augment your expertise. Dozens of clients have remarked to me that they view our associates as their virtual colleagues - reinforcing the top rating that you bestowed upon us for client service among U.S. OCIO providers.5 Many of you have noted that our overlay services have been a vital extension of internal capabilities in normal times, but a veritable lifesaver in this time of crisis.
Emotion is arguably one of the single greatest contributors to wealth destruction. This is why our cultural DNA at Russell Investments is relentlessly empirical, grounded in data and intellectual objectivity. In a world transformed by COVID-19, emotion - that is, decision-making without fact-based, data-driven, scientific insights - also risks driving severe societal fissures. As the public debate intensifies over the pace of reopening economies, fact-based guideposts are getting lost in a polarising emotional fog. It is easier to assign blame than it is to identify and solve structurally complex and interconnected root cause problems. It is worth remembering that when we start blaming, we stop thinking.
As we prepare for the future, I’d like to share a few observations:
- Biology will drive the economy. Fully reopening economies will hinge on scientific efforts to produce effective treatments and develop an eventual vaccine. In the meantime, the availability of testing and personal protective equipment, as well as contact tracing initiatives, are needed to provide a stable path to economic recovery. While some estimates of when a vaccine could be delivered to billions of people have stretched to the end of 2021, the good news is that there is more scientific horsepower behind these efforts than anytime we have seen in the last eighty years on the brink of world war - a period that produced some of the most important breakthroughs ever seen, including blood plasma transfusion, mass-produced penicillin, microwave radar, and jet-powered aircraft.6
- The road to recovery will, therefore, be uneven. The market is a discounting mechanism, and it is currently discounting positive economic growth rates starting in the third quarter with projections of a full economic recovery by the end of 2021. Given the massive $15 trillion liquidity injection - equal to 17% of global GDP - by central banks and governments around the world, the market may well be right. But I would expect continued volatility along the way to recovery. Biology, as well as people’s behaviour during these unprecedented times, cannot be predictably harnessed to our timetable and desires. There will be missteps, backtracking, and rerouting as economies around the globe find the safest and most effective means to fully reopen.
- Public, private, and individual partnerships are crucial to a sustainable and inclusive recovery. It was no coincidence that Seattle - our headquarters and also home to so many of the world’s most dynamic and innovative companies - led the U.S. with a collaborative, science-driven approach to tackling the COVID-19 outbreak and evaluating best ways to reopen. As CEO of Russell Investments, I am an active member of Challenge Seattle, an alliance of 19 chief executives including some of the leading thinkers of our times and led by Governor Gregoire, and the Washington Roundtable, a group of senior executives of major private sector employers in our state. We have been actively sharing ideas and best practices to manage successfully through this period - and to build toward a new future.
- The pandemic has exposed and accelerated sharp inequities that need to be addressed. For the past few years, I have been in discussions with other business leaders on the need to shape a more inclusive form of capitalism, extending the opportunities and benefits of our economic system more systematically throughout society. The gap in savings, and thereby personal financial security, is now a global emergency. The current pandemic should act as a clarion call to action.
We will emerge from this crisis stronger and smarter, just as we have from world wars, natural disasters, and the last Great Recession. As we emerge, we should be pausing to ask: How do we empower all members of society to participate in economic growth, and thereby broaden the net of financial security? How do we harness, protect, and strengthen what has proven to be the best system for resource allocation and society’s productivity? In the end, these are questions that will make our global economy more stable, more resilient, and more united in the face of the next black swan.
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.
1 Russell Investments, October 2019.
2 World Economic Forum, June, 2019.
3 Russell Investments, October 2019.
4 Morgan Stanley Research, Still Early Days for Private Markets, 17 September 2019.
5 In a 2019 study conducted by Chatham Partners, Russell Investments significantly outperformed peers in multiple client service metrics.
6 Loonshots, Safi Bahcall.