We have Paul Uhlman, President, Federated Securities Corp, joining us to talk about the use of environmental, social and governance (ESG) considerations becoming a vital part of fundamental securities analysis, valuation, the pursuit of long-term risk-adjusted returns, as well as investors’ fulfillment of their fiduciary responsibilities.
As President of Federated Securities Corp., Paul is responsible for Federated's overall distribution efforts. He leads Federated's various external and internal sales units – broker/dealer, wealth management and cash, RIA, global, institutional, retirement and separately managed accounts.
Transcription:
So good afternoon, everyone. This is Audrey Russo, President and CEO, the Pittsburgh Technology Council. I am glad to be here June 1, hard to believe. And I know many of us are out and about and happy to be back at work and networking with people. I know myself, I had a breakfast, but it was a pure delight. So hopefully everyone is safe and sound and getting vaccinated and at least enjoying all that we've missed over the long period of time. So today, we have an opportunity to do a little bit of a deep dive with Paul omen. He's president of federated Hermes. And before I do that, I do want to give deep appreciation to Huntington bank, for being our partners through this entire journey. and beyond. They have believed in us and known that we are just passionate about telling stories. But we were more passionate about keeping the community together together. Jonathan Kersting is with us each and every day. He's vice president of all things media and marketing, and simultaneous to doing this show, he's also busy with doing all other ways of sharing stories and highlighting so many of the amazing companies that are right here in our region. So 40 by 80. That's the longitude and latitude of Pittsburgh. And that's a wholly owned subsidiary of the tech Council. And that is our charitable arm. And soon you're going to be hearing more about what we're doing with creating pathways, pathways for people who might not have opportunities to be in tech and innovation. So we're pretty excited about an apprenticeship program that we're launching and the work that we do and helping entrepreneurs, as well as kids in schools. So I want to jump in now. And thank Paul omen for joining us today and taking time out of a very busy schedule, I'm sure coming right back to work after a long holiday weekend in the world that he's in. So welcome, Paul, thank you for being here. And I hope that you are safe and sound. But more importantly, what I'd like to do before I start asking any questions, I really just like to know how is Paul who is Paul, what's been Paul's professional journey, you know, sort of start wherever you think makes the most sense to tell us how you landed in the role that you're in right now.
Yeah, great. Well, thanks for having me, Andre, really appreciate it. So I am actually not originally from Pittsburgh, I grew up outside of Philadelphia. That's right. But I am a penguins fan and a Steelers fan, I can assure you of that. But actually went to college at the University of Pittsburgh and that that's how I got to Pittsburgh, and was actually recruited by at the time federated investors to start with a company going on 32 years ago. So I've been a lifelong federated employee started out, really, as an account administrator, where you were answering phone calls from clients, learning the business getting licensed, I knew I always wanted to get into sales. And was fortunate enough, after about a year that took a territory in Ohio, so moved to Columbus, Ohio, and started calling on smaller trust companies and private banks in the state of Ohio. So drove around the state of Ohio for a couple of years, ended up getting back to the Philadelphia area and took on some additional responsibilities calling on bigger clients. Ultimately, getting to New York City started calling on the big global banks there, began managing people. I will tell you, the highlight of my sales career was actually meeting my wife who was a client at the time, believe it or not, yeah, this is probably 25 plus years ago, actually are the one person who I knew pretty well brought her along to the lunch and you know, the rest is history. So we lived in New York City for six or seven years, started to have a family moved to Connecticut. Worked out in New York. now have four kids. Actually, next year, we'll have three in college and one in high school. It's hard to believe. Yeah, and moved here to Pittsburgh five years ago. So I've always worked for federated but primarily on the east coast. But when they asked me to sort of run the distribution organization sort of required me to come to Pittsburgh, but again, I I knew the city quite well. And I must say at the time, we Move moving for kids at the time, we had an 11th grader ninth grade or eighth grader and fifth grader. Hey, I was not father of the year that year. But as I tell everyone, I mean, Pittsburgh is so welcoming. I mean, and people are just have just been phenomenal. And that made the transition. Super easy. So. So that's that's how that's a little bit of sort of the personal background. Right?
Yeah. Your kids are used to moving around, they'll serve them? Well.
I you know, it's funny, you say that, because I think particularly our oldest, who moved here as a junior, just sort of, you know, learning to make new friends and a new school environment, I think really helped them out in college, and hopefully the same for the other kids.
That's great. That's great. Or at least you can repeat that to yourself over and over. I keep telling myself that. So let's talk just let's talk a little bit about this Hermes, addition to federated, can you talk about that, and then we're going to talk about this responsible investing and some of the things that have been at that helm
of federated? Yeah, sure. So um, so we actually acquired them going on three years ago, so so July of 2018. And prior to the acquisition, we actually got to know, they were known as Hermes Investment Management out of London. And for quite some time, I think, as we were doing some strategic planning about our own organization, and sort of where there were gaps, and where there were opportunities, we uncovered a couple of things. You know, one was our distribution, you know, who we work with, is primarily us centric. So most of our assets that we manage, are US based, and we wanted to become more of a global investment management firm. So how do we expand our sort of non North American distribution. And then secondly, there are capabilities that that we don't have, that we thought were really important to have, if you want to be sort of a big global investment manager. And we identified a couple of gaps, sort of private markets, business, think of infrastructure, real estate, private equity, or things that historically we did not manage ourselves, as well as, you know, some non us business or non us investment management capabilities, think emerging market equity, you know, Asian equity, etc. So, so, you know, eight or nine years ago, we sort of set out thinking through how we could maybe get more of those capabilities and expand our distribution, which is how we got to Hermes. And interestingly, you know, we we uncovered them because of their investment capabilities. And it wasn't until sort of, you know, a couple of different meetings, that we really began to understand the way they have been able to deliver the investment returns that they have, is using ESG integration and using that information to make better more informed decisions. So I know I don't want to pretend like everyone talk
about ESG is a little bit so that people understand that.
Yeah, so ESG, you know, very high level, environmental, social governance are really what the three letter stand for. And it's an it's their ability to or, and now, of course, our ability to understand the that data and that information, and how that plays into making better investment decisions to give our clients better risk adjusted returns. So, you know, think of it is, you know, on the on the governance side, right, you know, diversity and inclusion, right, you know, at the, at the board level, at the organizational level, you think about environmental, environmental, I mean, you know, climate change, you know, all of these factors can be predictive, if you understand the companies the way we do or we like to think we do can be very predictive of outperformance in the long term. And one of the things we do a little bit differently than some organizations is we actually have an engagement team of 60 plus people that actually go out around the world and engage with companies in a very consultative way on various environmental, social and governance issues they're dealing with and helping them which then gives us a lens into their longer term business. And I think as a money manager, if you, the more insights you have relating to those factors, again, the more informed decisions you can make for shareholders.
So I mean, then was it in 2006, that the UN helped to launch the principles for Responsible investments in 2000 sets? The since then the list of signatories to these principles has grown to nearly from 100 to about 3000 in asset management. So that's represents what, like, some $90 trillion. So responsibility is not, you know, responsible investing is not a new fad. But what is what is new? What is different?
Yeah, so, so, Audrey, just as an aside, we were actually one of the original saying stories of the UN pri, and actually wrote six of the principles. So Hermes, investment management did that. So we've sort of been doing this since the early 80s. But I think what's really changed? And I'll sort of, you know, have my discussion be more focused here in the in the US, then then maybe in the UK, or, or Europe? is, you know, I think here in the US, there's, there's been this misunderstanding that ESG investing is excluding bad stocks from your portfolio or not owning them. Right. And, and, and, and I think, as we did the acquisition of Hermes, and began to talk to our clients about ESG, you know, we quickly realized that the spectrum of understanding of what it is and what it is not was, was vast, and, you know, obviously, there's a segment of investing where you can exclude stocks, but then there's, you know, there's a segment of ESG, where you're just integrating this data into how you manage money, there, systematic investing where, okay, maybe you want a low carbon portfolio. So, so the spectrum is very, very large. The other driver here, the US is, you know, we're going to have the greatest intergenerational transfer of wealth call to the tune of, I mean, I've heard numbers as high as $60 trillion, right? That, you know, are going to be inherited by, you know, the younger generation, where many of these issues are very, very important to them. So, so as we were talking to our clients, both institutional and and the advisory community, we thought, we got a lot of requests, hey, I want to learn more about that. I want to understand that more deeply. It occurred to us, you know, a, an institute, we called the responsible investing Institute, that perhaps we could create, to help educate people will go a long, long way. So that's actually what we did. It's three modules. As of right now, we partnered with a another consulting firm kks, which is renowned in the business to help us really help our clients understand, you know, the whole ESG continuum, because more and more people are asking them about it. And we wanted to make sure they were fluent in sort of the intricacies of, of ESG investing.
Well, how well equipped I mean, given the transference of money, and given the priorities, and the proliferation of ESG, how well equipped Do you think most advisors are to help their clients really understand, because you've talked about like categorical investment, as well as just sort of an over arching kind of investment strategy that's focused on, you know, can be array of things, right. It could be diversity, it could be people rights, it couldn't be their presence in different countries.
Right. Yeah. So So we actually did a survey to try to better answer that exact question. And the, the survey results came back that, you know, at the advisory marketplace, as well, as the institutional marketplace, had commented that, over 90% of the time, they've been been asked by clients about ESG, yet only a quarter of them felt comfortable talking about it, right. And that was the disconnect that we saw that, hey, you know, this responsible investing Institute can can be a bridge to help them become more comfortable and more fluent with, you know, the, the intricacies of these concepts, so as to have better conversations with them on the topics.
And the concepts are really complex in terms of measurements. And in terms of, you know, pulling. I don't want to say, you know, sort of going under the seats, but really finding what some of those indicators are is that with those community engagement people do and help
Yeah, yes and no. So I so I think the way we've organized these modules, so it's sort of, you know, the first one is just ESG, 101? Sort of, Okay, what is ESG? What it is, and, you know, some of the things we've talked about here earlier on, the second module has to deal with data, and the various types of data that are available to investment managers like ourselves. And this is where the engagement team and the data sort of play with one another. Because if, let's say there's a data source out there that's ranking, you know, pick an oil company, and maybe they had a, an oil spill. Okay, on the environmental side, that company would probably get a very low score because of that incident. Right. And I think what we tried to look at is not only those data points, but we think it's more important to understand, okay, if if there was an issue like that, what is the company doing to prevent those prevent a future oil spill, or perhaps even continue to, you know, find other more sustainable forms of energy? So the engagement people give you a lens into what they're planning and thinking about, rather than sort of looking in the rearview mirror that, okay, well, you know, they're, they're bad because they had an oil spill. So, and to Audigier point, this is it gets very, very nuanced, because you've got certain data that is factual, but in some ways backward looking. How do you get the How do you get the view through the windshield? And and our thinking is the only way you get the view through the windshield, in terms of what companies are doing and how they're doing it, is through client engagement.
And so as an investor, as just as an investor, not as an as an investor of other people's money? Are those modules available?
They are so there, you know, if you go go to our website, you can register up there.
Well, yeah. It's on your website. It is Berlin. And so that education for people like myself and people listening? Absolutely. Okay.
That's great. It's under the responsible investing Institute.
Okay, that's great. So Jonathan, there's a couple of I think there's at least one question out there.
One just rolled in from Eileen Stewart wants to know, um, give advice on tax credit funding with your clients like etc, or Oh, STC specifically?
I know exactly what they are, but we do not. And and I'll tell you, so our business model is a little bit different in that our clients tend to, we tend to work with advisors, and or institutional investors, and really do not have any direct individual investors, you know, coming to us. So that's part of the reason why we're less involved with that. But,
but actually, at your, you know, you're responsible investing center. Any of us can go in and get, you know, educated on a lot of these topics, whether or not, we're your customers. Exactly. Okay. Yeah. And so what's the hope of that? What's the hope of that, that? investors wise?
Yeah, so, um, I would say it's a, it's a couple of things. And by the way, I think these different modules, they, they tend not to be the Federated Hermes commercial. We really tried. And that's part of the reason we worked with kks, advisors, you know, we wanted this to be educational. So, you know, by helping advisors and institutional investors become, you know, more fluent in these discussions, our hope, is there some value that's added there, and they continue to think about us for their investment needs. But you know, Audrey, you know, clearly the more people are educated on this and aware of, you know, that the different intricacies of the business. I mean, that's just that that's the right thing to do. And when we sort of have a tagline, you know, responsibility where it's a responsible thing to do. So that's clearly a benefit for everyone.
And so there's been, you know, in California, there's been, you know, a lot of movement about women and people of color being on board and I think they have a mandate now, is that correct?
They do. I believe that is going into place. I don't know if it's in place right now. But I, I believe that is in motion. And you know, what I think, you know, all of those issues are really, really important, right? There are lots of studies out there that talk about, you know, a diverse and inclusive employee. bass is, you know, makes better decisions, you know, you don't deal with group thing you don't you know that, you know, and it's taken a little bit of time for this to become, you know, more front and center here in the US. But it, you know, clearly the momentum is, is being built there. And if you look outside the United States, in the UK, and in Europe, I mean, many of these things are being mandated by law in terms of incorporating ESG considerations and investment mandate. So, I, you know, the question as to whether we will, as a, as a country get to where they are or not, and obviously, there are a lot of political dynamics to this conversation as well. But I think when you sort of cut through all of that, when taking into consideration, environmental, social, and governance factors, purely from an investment management standpoint, allows you to to deliver better risk adjusted returns, and that's what we're in the business of doing.
So, you know, it's, it's interesting, what countries are leading? What would who would you say, are leading?
I would say the UK is? Yeah, as you know, they've been on the forefront. But then, you know, many, many parts of Europe as well, I would say, Asia is, is a little bit behind. I don't mean to say that in a derogatory way, but maybe not as far along. And then as you sort of swing around the world, clearly, Australia, is there as well, Canada, more so than the US. And I would say Latin America, might be even a you know, on par with where we are, but you know, and they're they're three, four or five years ahead in the UK. I mean, it's, it's been going on for quite some time.
Well, you can even feel this movement affecting non public companies as well. And, you know, just and they're, you know, obviously trying to catch up, and many people are really trying to do the right thing in terms of their representation of people and looking at their carbon footprint. But it really does matter whether it's public or private. And the performance has been high. They say that more when more women are on a board of public board, that that ethics and compliance and this has nothing to talk about gender, but just saying that ethics and compliance tend to be higher.
Yeah. And we've done studies that show, you know, if you avoid the bottom 10% of companies with poor governance, I mean, you can actually see, you know, meaningful investment returns by avoiding the laggard. So it's, it's, it's both a risk mitigant, but an opportunity to generate alpha as well.
Yeah, I mean, that's, that's pretty profound. So the importance is all of us to get to know that. So you're saying number one log into your account, you can log into the responsibility center that you have, but also, are there other things that we should all be thinking about? In terms of the space? You know, I
think it's a very personal decision, to be honest with you. You know, I think there are, you know, there, there are individuals that feel extremely strongly about, you know, climate change. Right, and, you know, some of those impact strategies, you know, candidly, they're, they're, their number one objective is to address that issue, you know, the, you might, you might have to give up some investment performance there, you know, for certain impact strategies. But that's, that's you trying to make a difference? Right. That's a very individual personal decision. You know, similarly, if, if you're looking for, you know, just trying to do the best you can, you know, there are solutions there. So, it really all depends on what's important to you, as an Oregon as an investment organization. I think we want to make sure we have solutions that perhaps meet those personal decisions that each individual house,
are there any trends ahead? Are you seeing some trends, that in this in this space,
here in the US, I mean, the trend of awareness has been unbelievable. And as I told you, you know, we did this acquisition a little less than three years ago. I mean, just in the last three years, the awareness of, you know, environmental, social and governance issues, and you just think about what the country has been through. If you would have asked me three years ago, whether I thought we'd be where we are today. I'd be like, Nah, that's too fast. We never get there. So, you know, this, this, the trains rolling down the tracks here, you know, clearly I think with the Biden administration, you know, Democratic Congress, you know, I think there's more willingness to be thinking about these issues a little bit more seriously think about some of the infrastructure ideas that are on the table. Renewable energies, I mean, this this, this is steaming down the track. So it's, it's gonna continue to pick up momentum. In my humble adjust assessment.
Yeah, I think so too. I think this whole conversation of calling social impact investing, investing, and all that that people are uncovering in terms of our history, even they say, let's not look back, I think looking back has allowed us to look forward. And I do know that there's lots of voices on shareholder calls from all kinds of companies that I'm sure that you've heard.
Yes, yes. And you know, and I think that gets a little bit back to our stewardship business where, you know, I think our thinking is, you know, rather than being an activist shareholder, and forcing some of that, I think, our approaches, we can be a lot more collaborative, and partner with these organizations to help them rather than, you know, take on some adversarial positioning. So, the stewardship business is, it really is an important part of how we think about ESG integration. And again, rather than relying on just data points that are backward looking really, you know, allows you to have a collaborative discussion with the C suite, to understand what they're doing, and then help them get there as well.
Well, Paul, you have a cool job, you've had a great, you've had a great gig so far, and you got great work. Great work ahead. So I can't thank you enough for being with us. I want to tell everyone, and I'll tell everyone as the week progresses, is that we've been doing this for since I think March 25 2020, almost every single day, except for Saturdays and Sundays and holidays. And we're looking at landing the jet at the end of this week, and landing the jet saying, you know, what, the world has shifted, again, amazing things are happening right at our footsteps, we are seeing, you know, in many ways, the light at the end of the tunnel just a little bit hoping that the fall doesn't bring anything back for us. And people are having lunch, just like I had breakfast this morning with you know how to work breakfast and, you know, had an opportunity to talk, we're now going to move into something called Beyond business as usual. And, you know, we're gonna, we're kicking it off, I think on the 17th of June, we're gonna have a conversation with Representative Ed gagne. And if you live in the city of Pittsburgh, you know that it's important to, to hear what what his vision is, you know, come November, if there are no opponents, that, you know, he will be our next our next mayor. And that matters to all of us. So, you know, stay tuned, we're still going to be providing relevant ability to be connected, we're in association. So it's important for us to all be associated and help one another's business. So stay tuned for that. And, Paul, my hat's off to you, thank you for sharing. I really thank you for sharing all that you are doing it is very important. And there's a lot to unpack in terms of companies in terms of their responsibility. So, and welcome back. Even though you've been back for a few years, welcome back and remind your kids you still are good, dad. Good.
Thank you very much. Really appreciate you give me a chance to speak with everyone today.
Yeah, this has been This is great. So I want to thank everyone and what do we have on board for tomorrow, Jonathan?
Well, as we begin our slow and steady descent towards Friday, tomorrow is our actually doing our winning the talents together. Series. So we're talking about how apprenticeships are an early becoming a game changer for getting talent into organizations. It's gonna be a great panel discussion should be a lot of fun and very insightful.
And then Thursday, we have the Pennsylvania Secretary of Transportation. Absolutely. Well, you can join in as well. We're talking about topics that probably are important to you, as well. So everyone, thank you stay on Fridays. And with the defense innovation unit from God, that is very interesting as well, saying we keep finding interesting things. And I'm like, Oh, we should do one more day. Not we're going to continue to do this work throughout all of our programs. So I can't I can't thank you all enough. So thank you, Paul. Thank you, everyone. And we'll be here tomorrow. Thank you. Thanks, Paul.
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