How I Invest with David Weisburd
00:24:32 · Christopher Donahue
[00:24:32] S1: I would look at it as primarily opportunities, although there is some beware the jabber walk. Okay? But to me, we aren't gonna have less than 2,000 people which survive what we have now down in the road. When we have our summer interns come in, the first question is always, Well, AI is going to take care of me. I won't be able to have a job. And my answer is always, Look, pay the extra $20 a month, learn how to use AI, and then you'll get the job. And we are going to be looking at it more as a developer of quality. I tend not to use the word efficiency when we're talking about AI, especially in an employment circle, because efficiency means FTE, I'm dead. Quality means, Oh, I could do it better. One example of that is we get a lot of phone calls from investors, and they have to be screened, and then you have to have quality control and all that. And the managers do that. And then they grade them. Well, when you have AI do that, all of a sudden, instead of only listening to one out of every 50 or 100 calls, you listen to them all. And then the AI grades them on things that are really good. Did you show love? Did you use the name of the customer while you were doing this? Were there a lot of I don't know. So, you know, things that distract from a direct communication? Did you get the answer right? What about the substance? Do we have less managers because they don't have to do that job anymore? No. We have higher quality calls, higher quality training, and a better overall result. And the same is true with requests for proposal, RFPs, where you can continually enhance them. Humans involved all the time. But those are just a couple of examples where it's going to work. The fears, they're all well publicized in the marketplace. And, you know, I don't buy that they're gonna blow up human beings. You know, 2001, A Space Odyssey. I know Hal wins, but I don't think Hal is gonna win. And I think it's no different in pattern than product liability. Your responsibility put a good product on. If you don't, you're gonna get hammered. So be responsible for what you put out. And I think a lot of that is hitting home with the AI companies. You know, when they delay coming out with something because they're worried about what it's gonna do And all the stories about escaping the sandbox, well, you let them escape the sandbox.
00:27:13 · Christopher Donahue, David Weisburd
So don't let them escape the next time. [00:27:17] S0: One of the industries that I'm really fascinated by right now that I think is undercover, cybersecurity. How much are you investing to cybersecurity, and how much more of an issue is that today with AI? It is a huge issue and very big. And how much investing? A lot of [00:27:36] S1: our investing is done with our custodian banks and transfer agents. They are all on the glass wing operation where they're studying what has happened with that release of the Mythos. Mythos. And they are putting the big money because we don't do the custody, the handling the money, the transfer agency work. And that's where you really need the good... Now we have our own cybersecurity. We get attacked all the time just like everybody else, and we have the concentric rings of defense just like everybody else does. But I can't tell you how much money we're spending on it. I don't know. [00:28:23] S0: You're known in the industry as, if not the longest serving CEO in the mutual fund industry, certainly one of the very longest serving CEOs. What's been the secret to your tenure?
00:28:36 · Christopher Donahue
[00:28:36] S1: The founding of the company was by my father, and two of his buddies went to the same high school I went to. In Pittsburgh. In Pittsburgh. So I cheated. Okay? On the other hand, I started working there in 1972 or so, and I've worked in a lot of different positions. And it's the culture that really drives the truck. And it is preserving the culture established by those founding fathers that I am very articulate with and very comfortable with, and it helps a lot. Like, for example, we had several big changes in people succession this past year and a half, where we were replacing forty year people with twenty five and thirty year people. Now, how does that happen? It's because of the culture. And the culture can be made up of a lot of things, but maybe the way to talk about it is in terms of some of their rules of thumb. My dad's one rule of thumb was, we want everybody to enjoy coming to work. Well, that's a good rule of thumb. If don't, then can we fix it? Well, if we can't fix it, maybe you should graduate. And then by the subtraction method, you get a lot of people enjoy coming to work. That makes everything a lot better. Another one of their statements was, You know what? If you get hired at Federated, you get to paint your own picture. You just have to stay on the canvas. What does that mean? That means that you as an individual have dignity and respect because you're an individual and because you have this position. So the PMs and their team have the paintbrush on the portfolio. Salespeople and others can say, well, you know, you need some more red in that or more yellow. And they could say, well, that's a very good idea. No. Because they have the brush on painting that picture. Sales individuals can say the same thing. This is my territory. I got it figured out. The M comes and says, Look at the record. This thing is terrific. You ain't selling nothing on it. You say, Well, yes, but the customers don't want that yet. And so, you can see how that kind of culture allows the thriving of People
00:30:57 · David Weisburd
[00:30:57] S0: are essentially CEOs of their own position.
00:31:00 · Christopher Donahue
[00:31:00] S1: They are. They are. And that makes for longevity. The customers like it. Now, we bring people in. Nothing's perfect, and it works like that. But another one of the ones that I like is, since I did time in law school, that there's no dying for the wrong reason. My dad was a West Pointer class of 'forty six. There's no dying for the wrong reason. Now, dying for the right reason isn't all that good, but dying for the wrong reason is stupid. Dying for the wrong reason is messing up on compliance, or with the SEC, or doing some stupid deal that may turn a switch on for five minutes that you know down the road it doesn't work. When we do acquisitions, we do them for the long haul. We don't want to just spread pixie dust over the marketplace and say, Oh, this is this whoop de whoop. We're to live with it for a long time. So we want the cultural fit. And I'll tell you one more that's very interesting. When we bought Hermes in '18, they had a code that they... An honor code, a code that they agreed to. And they said, Well, you guys should have this. We said, We don't need no code. We're Americans. We don't need a code. Then we read it. So, we'll just read it. So, we read it. We go, Well, we agree with all this stuff. And so, what happens is over 95% of their people just sign up voluntarily, and we don't use it against them. It doesn't get weaponized. So he said, okay, we'll do it. But there's two things you you... We're gonna, comment on on that. Number one, you're gonna put the word fiduciary in your code, which it wasn't in there. We thought that was important. And the other thing is we're going let you spell behavior wrong with an IOUR. So that was our deal. And now we have their code as part of our deal. We have over 95% of our people looking at it, sign up, say, Yeah, that's kind of like what I do. And it and it is customer focus, be nice, dignity and respect, respect even the regulators, improve the community, improve your activities, be working on... You know, that that kind of thing.
00:33:09 · David Weisburd, Christopher Donahue
[00:33:09] S0: What's downstream of having employees sign the honor code? [00:33:13] S1: Nothing. It doesn't... Hopefully, it doesn't change anything. Hopefully, it's just an endorsement. They understand what the culture is at Federated Hermes and now they're part of it. They go, yeah. But we don't go after because they're, woah. Woah. Woah. Woah. Right here, says this. No. It doesn't get used like that. It's it's just part of the deal. [00:33:33] S0: Reminds me a little bit about how the North Vietnamese turned some of the captors against the Americans. Have you heard about this? No. Would have them... Every day, they would have they would have them just... They were starving, and they they would starve them. And then they would have them... They would give them food, which is very scarce, just for writing certain things, and they would say something. And they started very light. They would just say, capitalism is not a perfect system. And then next one, they would say, America is great, but not the best country in the world. And by then, they were saying, we are communists. Like, you know, several months later, sometimes getting people to do things that you want. Obviously, in this case, it's a very positive thing. But sometimes just having people sign something and write something is extremely powerful, powerful psychological. We call