‘We learn something new every day’: Conning CEO Woody Bradford on crisis leadership, investment opportunities, and how the future of work is changing

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I was recently catching up with Woody Bradford, the CEO of insurance asset manager Conning, and couldn't quite end the call.

From how the leader of 450 employees quickly moved a global workforce to work from home, to how the $170 billion-AUM firm capitalized on investment opportunities amid historic turbulence in the markets, to how certain trends that are accelerating during this period will shape the future of how we work, we covered a lot over the course of an hour.

I wanted to bring salient parts of the discussion to you in this edition of Human Capital — which, you may have noticed, we are publishing more frequently as the coronavirus pandemic continues to reshape economies, the nature of work, and much more. Below are excerpts from the conversation.

As a CEO, how did you approach this crisis as it began to unfold?

The context of the last seven weeks has been extraordinary. I was talking to a senior executive of one of our clients recently, and he said, just look at what's happened: We've had the most volatile markets we've seen in well over a decade; we've had clients that have been very busy managing their own businesses and asking lots of questions about their portfolio — correctly so; we've had radical changes in our operating models, both as a company and personally; and all the while people have been concerned about their personal health and safety. So, it's been a tremendous period for most companies.

Going into it at the beginning, the first thing we did was rely on a very thoughtful business continuity plan — most companies in our business have robust processes to deal with discontinuity; it's required by regulation. Because of the experience that our colleagues in Hong Kong and Taiwan had gone through for many, many months, we had the chance to learn from them and really think through some of the more complicated details about how you work from home for many weeks, and not just because of a snowstorm or because of a power outage. Our colleagues in Hong Kong have been dealing with protests and typhoons and the virus for many, many weeks and months.

We also have a very mobile model. Our folks live on laptops, not hard desktops. And we were a very cloud-based organization. So for us, the transition to being at home to conduct work honestly was pretty straightforward.

Crises magnify both good and bad leadership. What steps did you take that others might learn from?

There are three main things that the leadership team did.

One is we set some very clear goals, very early — this was in late February. We let people know that we're focused on taking care of our employees, managing portfolios, and serving clients. And that was it. We communicated it in many different formats: clear goals and focus.

Number two is our actions followed those words. I and other members of our leadership team spent time very close to our colleagues, very close to clients, very close to the markets and portfolios. So we reinforced that set of priorities visibly for everybody.

Third is we stayed nimble and we listened. Our business continuity plan has evolved. It wasn't one plan that we "set it and forget it." We learn something new every day, and we've been very adaptable to using those learnings to evolve.

If I could add one more, it would be that a good dose of empathy and humility goes a long way. We're all working from home — there are people who are working on their kitchen tables, folks have their dogs, their kids run up in the frame. We've all shared that, we've laughed about it. The whole company has seen my work-from-home setup. We're all making do, and as a leader, empathy and humility go a long way right now.

On top of your duty to employees, you shoulder Conning's duty to clients. How have they reacted during this turbulent period for markets?

Let me start with what our clients did when the wheels began to come off in the market. There's a fairly predictable pattern that a lot of our clients went through. One thing they did not do is panic. I cannot think of a single circumstance where one of our clients had a panicky reaction to the situation.

Most of our clients, as insurance companies and institutions, have a thoughtful asset allocation, they have a thoughtful risk-management program. I think we worked with them to prepare them well for that. And they tend to be longer-term investors. So when I described the context of Conning earlier, the fact that we have insurance companies and institutions as clients and that we’re fixed-income investors allowed us to have a very different reaction than perhaps somebody who is more retail-driven and more equity-driven.

In the beginning, the clients asked predictable questions. First it was, tell me what my liquidity position is. Because there was a week when the market, and the fixed-income markets in particular, just ceased to function before the Fed stepped in. That was a very dramatic period.

Then: What can you tell me about my portfolio? Do I have risks of downgrades, risk of defaults? What's my investment income forecast as rates have fallen for the rest of the year?

Then — and only then — do we start to think about whether or not there are opportunities to take advantage of the dislocation. But since our clients are insurance companies, we're very focused on the top of that stack and in that order: liquidity, understanding the portfolio, understanding investment income forecast, and then thinking about opportunities.

As a fixed-income investor, you follow the Fed's actions especially closely. What's been your take on its actions and on investment opportunities?

The policy response has been nothing short of extraordinary. It's been huge. And it's been fast.

If you think about some of the key policy drivers — fiscal policy, monetary policy, regulatory policy, trade policy — we've seen supportive policy and we've seen it around the world. That creates a safety net.

One person we work with said to me a few weeks ago, "The Fed has sprayed foam on the runway before the plane crashes."

The Fed realized this could be very bad and that it needed to signal to the marketplace that it's there, that it would help, and critically for fixed income, that it would make sure markets would function.

We did have the week of March 16 — a week that was extraordinary. You saw forced selling, margin calls, the capital markets were frozen. I mean, it was an extraordinary week like we hadn't seen in a very, very long time. The markets then started to thaw; you started to see some liquidity and that has continued to improve.

We did see in that period some tremendous investment opportunities for high-quality assets, and we made a number of purchases for clients. When the markets weren't functioning and people were forced to sell, they were mostly selling the only things they could, and those were very, very high-quality assets: triple-A, structured securities, short duration. We were able to buy some of those securities at yields that were north of 5% and approaching 6% in some instances, which is, if you think about where yields have been for the last number of years, pretty extraordinary.

We also had clients who made decisions to enter the equity market that week with new allocations. So, we did see some people who took advantage on the margin to put some money to work.

Stepping back, markets are functioning and we think that the government and regulatory authorities have sent signals that they're going to do whatever it takes to keep them functioning.

Whether or not we've seen a bottom, you have to look at two things very carefully: One is medical outcomes. Because right now, we don't have a lot of data yet to know for sure what the medical outcomes are and what that means for the depth and duration of the economic impact.

And then two is looking at the fundamentals of companies. Looking at first-quarter earnings isn't telling us much. I mean looking at April results, looking at second-quarter results and how people react to that; whether small businesses are going to be able to survive; liquidity at the company level through the cycle. All these factors are going to determine how the situation plays out for fixed-income investors.

We do think that for right now, there are many, many well-capitalized companies that have been paying very attractive yields. We continue to see attractive opportunities on the short end and structured. But when it comes to companies that are out on the risk spectrum, I think the uncertainty over the depth and the duration of the economic impact here is something to be very cautious about.

The root cause of the problem hasn't been fixed yet. And there are two: One is the medical problem, and the second is the shutdown by fiat. We don't really know for sure how either of those is going to play out.

That suggests that if you don't have to sell anything, you shouldn't. Forced selling destroys value.

But it's probably not a time to dive in and put all your risk to work either. It's hard to have confidence until we actually have facts on company fundamentals and medical outcomes in a more certain way.

Your clients are insurance companies. How are they being impacted by the pandemic and economic downturn?

The one that's probably most talked about at this moment is business interruption insurance. Coverage for risks that weren't anticipated in property and casualty contracts — that's been a very big topic. What are the legislative moves there? Who's liable? What are the risks?

Of course, growth will be negatively impacted across all sectors of the economy, and that has an impact on basically all insurance companies. Life and annuity insurers are going to be exposed to asset value changes, and that's going to impact their risk-based capital. Reduced economic activity has the impact of lower exposures and lower premiums — you think about fewer auto accidents, fewer truck accidents, fewer workers, high levels of unemployment.

The health insurance sector is going to have a rise in claim costs, and they're waiving certain costs or absorbing others to do the right thing and help make their contributions to the country.

Depending on each individual company's mix of business, what their client base looks like, what their geographic exposure looks like, how much reinsurance they have and how they've used it, the impacts will be pretty different. So, there's a lot more than just business interruption insurance that the industry is thinking through as it looks at COVID-19.

We hear a lot about trends that are being accelerated during this period. What are some that you're seeing or experiencing?

Certainly I would say technology, data science, and use of analytical tools as a whole. There are many different flavors of that, but that is certainly becoming more pronounced in our business.

That type of mindset, that ability to be facile with that language, being able to deal comfortably with data and analytics and coding — it's as or more important as speaking a foreign language these days when we think about new hires.

Number two, and people maybe have lost sight of it a little bit, but I think that continuing to push for diversity, equity, and inclusion in the workforce is critical. Many companies have been on that journey, and it truly is a journey. But I think opening yourself up to having a broader range of employees who can work in your organization and actually be engaged and successful is critical as a leader today. I think anybody in a management position, from middle management up to the top of the company, has to be pushing for that in any way, shape, or form.

And third is finding different ways to connect with people. We're learning it through this very experience right now. This experiment that we're all going through I think will fundamentally change the way we work for a long time.

I've been talking to a large number of our clients — CEOs, chief investment officers — and one of them actually said to me, "I'm more willing to hire somebody working remotely than I ever would have been able to think about before."

I think there's going to be a shift in mindset: Work-from-home policies are going to change, willingness to hire people to work remotely will change, needing to be able to train effective managers over a longer cycle for a mix of work from home and work in the office. It's going to be complicated. If some people are in the office and some are working from home, how do you manage that and maintain a culture and maintain a smooth investment process?

Yeah, it's going to be really complicated.