The biggest investing risk? Not investing!

Key Concepts

• Market Outlook: Constructive with significant tail risks.
• Client Conversations: Shift from asset allocation (e.g., MAG 7) to outcome-based investing and risk mitigation.
• Diversification: Evolving beyond traditional 60/40 to include alternatives, guaranteed income, and specific yield/duration strategies.
• Alternative Investments: Defined by correlation to specific risks (inflation, volatility) rather than just outsized returns.
• Tail Risks: Policy uncertainty (Fed rate cuts, US debt situation) and geopolitical factors.
• Modern Monetary Theory (MMT): Acknowledged as a factor influencing current economic models.
• Career Path: Non-linear, involving "picking up breadcrumbs," passion-driven shifts, and continuous learning.
• Mentorship: Emphasizing genuine interest and investing in relationships.
• Early Career Advice: Focus on doing small things well, accountability, and investing in relationships.
• Wall Street Evolution: Shift from grunt work and math skills to technology, speed, customization, and adaptability.
• AI Impact: Transformative for the global economy, driving consolidation and changing how financial services operate.
• Digital Employees: AI-powered tools enhancing efficiency and decision-making.
• Wealth Transmission: Technology and retirement market evolution are increasing broader participation in markets.
• Investing Journey (Early 20s): Focus on long-term outcomes, diversification, and consistent investing (e.g., 401k), not get-rich-quick schemes.
• BNY Mellon: America's oldest bank, significant global asset holder ($60 trillion), custodian of digital assets, and a leader in breaking down silos.

Market Assessment and Client Sentiment

Jose Mania, Global Head of BNY Investments, describes the current market as "very constructive" with strong underlying factors like earnings, unemployment, and accommodative Fed policy. However, he notes a significant and growing list of "tail risks" that are at their highest levels in his career.

Clients, while not necessarily "excited" about owning stocks at higher valuations, are driven by the fear of missing out on market gains. The conversation with clients has shifted from simply asking about asset allocation (e.g., "Are you going to put me in large cap, midcaps, the MAG 7?") to a focus on "outcomes." Clients want to understand how their portfolios can protect them against different situations or generate specific desired outcomes.

Evolving Diversification and Alternative Investments

Traditional diversification strategies (e.g., 70/30, 60/40 stocks/bonds) are no longer sufficient. Mania emphasizes the need for more complex approaches that focus on protecting principal, developing specific yield, and considering duration and timing. This involves constructing portfolios with "alternatives" and other investments that offer the "right correlations."

Alternative investments are viewed not primarily for outsized returns, but for their ability to protect against specific risks like inflation or equity volatility. Mania clarifies that while crypto might be considered an alternative by some, his focus is on assets that provide positive correlation to desired outcomes or protection against specific risks, rather than speculative themes. He uses real estate as an example, where its inclusion in a portfolio is based on its role within the overall structure, not necessarily a belief in it being a prime time to own real estate.

Key Tail Risks and Economic Model Shifts

A significant tail risk identified is the possibility that the Federal Reserve may not aggressively cut rates next year, or that concerns about the US debt situation could lead to rising yields. Mania acknowledges a long list of concerns, including geopolitical factors, but highlights policy as a major one.

He observes that traditional economic models seem less applicable today. Factors like inverted yield curves or high debt levels, which would have been considered "Armageddon" scenarios in the past, are now viewed differently. Mania attributes this shift to several factors:

• Demographics: Changing population structures.
• Globalization: Increased interconnectedness of the global economy.
• Technology: Its pervasive influence on economic activity.
• Government Intervention: A broader role of governments in "free markets."

Career Journey and Mentorship

Mania shares a non-linear career path, starting from aspirations of becoming a professional baseball player (he was drafted and played minor league ball) to pursuing a career in the Marines, and eventually finding his way to Wall Street due to his aptitude for math. He describes his journey as "picking up breadcrumbs" and later shifting his focus to what he was passionate about, which led him from the sell-side to the buy-side and into launching an agriculture and natural resources fund.

He emphasizes the importance of mentors throughout his career, starting with his parents and extending to figures like the Dean of the business school at Manhattan College. He believes in identifying individuals who take a "genuine interest" and actively "investing in that relationship" by giving back.

Advice for Aspiring Professionals

For individuals starting their careers, Mania advises:

1. Do the Little Things Really Well: Focus on accountability and excelling at fundamental tasks, rather than immediately seeking high-profile responsibilities. He uses the example of making copies as a task that, when done well, builds trust.
2. Invest in Relationships: Recognize that success is not solely about pleasing one's direct superior but also about building a network of peers and influential individuals. The "halo" or "shadow" cast by one's reputation is important.

Transformation of Wall Street and the Role of Technology

Mania predicts that the next five years will bring more change to Wall Street than the previous twenty. While core principles like building relationships and using spreadsheets remain, technology, particularly AI, is at the forefront. The ease and speed of executing tasks, accommodating client customization, and moving assets quickly are now "table stakes."

He notes that his own value proposition, which was once based on doing "grunt work really well" and having strong analytical skills, now needs to be augmented by technological proficiency. He describes himself and others with similar backgrounds as a "dying breed" in terms of traditional skillsets, but believes that relationships and the willingness to "reinvent yourself" are key differentiators.

Mania highlights his experience at BNY Mellon as a learning environment, where he is actively engaging with new concepts like tokenization, custody, and payments, demonstrating a commitment to continuous learning and adaptation.

BNY Mellon: A Historical and Modern Powerhouse

Mania discusses BNY Mellon's unique position as America's oldest bank, the first company traded on the NYSE, and a firm founded by Alexander Hamilton. Its early clients included Eliza Hamilton and George Washington.

Today, BNY Mellon touches approximately 20% of the world's assets, managing nearly $60 trillion. It clears all U.S. Treasuries and custodies over 80% of digital assets. Mania attributes the firm's success to its ability to "break down these silos" and leverage its broad ecosystem.

Leadership and Building Trust at BNY Mellon

Having joined BNY Mellon as Global Head of Investments over a year ago, Mania emphasizes that his initial phase involved listening and learning, as advised by his boss. He is now focused on setting a vision and leveraging the firm's established strengths.

A key priority for him is "winning our people's trust," which he believes is foundational for leadership. He leads with "empathy" and "transparency," providing autonomy while maintaining accountability. He understands that change is difficult and can be threatening for some, and his approach involves bringing people together by understanding their perspectives.

The Impact of AI on Financial Services

Mania views AI as a transformative force for the global economy, with rapid adoption and continuous evolution. He believes that firms investing in AI will be the "firms of tomorrow," leading to industry consolidation.

Internally, AI is enhancing efficiency by enabling quicker document review and potentially improving talent acquisition and decision-making. He mentions the emergence of "digital employees" (AI-powered tools) at BNY Mellon, which he sees as a significant and transformative development.

He believes that individuals and firms leveraging AI will outperform those who don't, leading to optimized outcomes through increased efficiency and better information processing. While acknowledging potential risks like overcrowding in certain assets (e.g., MAG 7) due to AI-driven strategies, he draws parallels to past technological disruptions (internet, TV, radio), suggesting that ultimately, these advancements lead to better societal outcomes, albeit with a much faster pace of adoption.

Bridging the Wealth Gap and Encouraging Investment

Mania addresses the "hot take" on how to transmit wealth from the affluent to those less invested in the stock market. He points to demographic shifts and technological advancements as drivers of broader participation. The retirement market, in particular, has become more diverse.

He believes technology is crucial in enabling everyday individuals to invest. While acknowledging that the pace of change might not be fast enough for everyone, the trend is towards greater accessibility.

For individuals in their early 20s looking to start their investing journey, Mania's advice is:

• Focus on Long-Term Outcomes: It's not about "getting rich quick."
• Diversify: Invest consistently in retirement accounts like 401(k)s, maximizing contributions.
• Understand Market Participation: Recognize that being invested in the market is key to participating in the growing economy. He advises against trying to time the market or relying solely on cash or gold for long-term wealth creation.
• Affordable Options: Explore the various affordable investment options available.

He expresses a hope that younger generations will recognize the opportunities they have in today's financial landscape.