Peter Harrison on Being a CEO, Career Advice & Meeting The Queen

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Joseph Cass

Hello, everyone. My name is Joe Cass, Director of S&P Global Ratings. I'm the creator and the host of Fixed Income in 15. Today, I'm talking to Peter Harrison, Group CEO at Schroders, and Dan Draper, CEO of S&P Dow Jones Indices. Today, we are talking crypto. We're talking the realities of being a high-profile CEO and also memories of meeting the Queen. So a quick reminder that the views of the external guests are their views alone, and they do not represent the views of S&P Global or its divisions.

Ok. Great. Let's get into it. Peter, I want to start at the beginning of your career. Would you be able to talk to us -- talk us through your career to date from university graduate to RWC, back to Schroders, and eventually as the group CEO.

Peter Harrison

Thanks, Joe. And it's great to be on. Look, my career is very unimaginative. I've done nothing else but asset management all my career. I started as a graduate trainee at Schroders having coded my way through university. And I spent several years here before having a career. JPMorgan was where I spent the longest chunk of career. And then at 40, I realized that I wasn't the best investor in the room. In fact, there was a lot of people a lot smarter than me making investment decisions.

So after 20 years of being an investor, I switched to managed investors and as sort of getting a start-up going in 2006 probably was a bit consensus. We went straight into the financial crisis as a start-up with a few portfolio managers. But RWC then grew. And by, what, 2011, '12, I was looking for a good shareholder to join alongside the management of RWC. And I took it to Schroders.

And after 2 years of Schroders being a great shareholder of RWC, they said, "Why didn't you join us?" And I kept saying, "No, I'm having a great time running a boutique." And then my 10-year-old son said to me one day, "Dad, what would you do if they stopped asking you?" And the insecurity inside me meant that three months later, I was working for Schroders and took over a couple of years later as CEO. So it doesn't show a great deal of imagination, I'm afraid, Joe.

Joseph Cass

Great stuff. Dan, you've also had a very interesting career to date, so spanning three continents, seven different companies, including companies such as Goldman Sachs, Salomon Brothers. Can you talk about your previous roles and your current position at S&P Dow Jones Indices?

Dan Draper

Yes. No, Joe, great to be with you, Peter. It's a pleasure and honor to kind of join you on the webcast today. Yes, look, I have over 30 years of pretty diverse and, I guess, broad financial market experience. I started in investment banking out of university with the old Salomon Brothers. I focused on power generation and infrastructure investing, which was a fantastic kind of grounding in terms of valuation projects and companies and things.

And that gave me a great chance early in my career to be -- to move or be seconded to Asia, and that was in the mid-90s, which were pretty incredible times for infrastructure investing. Really developed kind of more of a passion for the markets and transitioned, after business school, you mentioned Goldman Sachs and particularly in their equities division, but kind of moved to more of the sales and trading environment.

And then kind of over the years, made my way to the buy side and was really a client for about 15 years of S&P Dow Jones Indices and frankly, all of the major index providers. So I was really pleased when the opportunity to lead S&P Dow Jones Indices came up 2.5 years ago, and it's been phenomenal. And I'd say my experience, particularly on the buy side as a client was really around passive investing.

So in the early days, I was in London at the time when UCITS, you know, the directive came into being and kind of cross-border marketing, and that really fit nicely with the growth of things like ETFs and kind of passive investing starting to take hold there. And again, you know, kind of continue to move forward there.

But yes, it's a privilege to, like I said, lead the S&P Dow Jones Indices business and frankly, working with active managers for benchmarks or passive managers for building passive products. There's certainly a lot happening, and very fortunate to be with a great team.

Joseph Cass

Excellent. So Peter, there are two topics that I bring up in pretty much every episode of the Fixed Income in 15 podcast with senior investors like yourself, ESG, and digital assets. Starting with ESG, can you talk us through Schroder's approach to ESG and also your personal thoughts on the future of ESG?

Peter Harrison

Yes. Thanks, Joe. They are probably the right two topics to bring out with everyone. My sense of it is that this is the first time our industry has been given a purpose. So we used to just be looking after people's savings, moving it from the left to the right. And suddenly, there's a third dimension, you know.

So when we all grew up in this industry, it was about performance and risk. And for many years, it was just performance and then risk got bigger and bigger. And now there's the third dimension.

And the third dimension is what impact are you having by generating that performance. And I guess the parallel is going into a food store and looking at the ingredients of something you're buying and saying, "Do I want the calories? Do I want the saturated fats? Do I want this to be organic?" And increasingly, our clients are saying, "We care how you make that performance." And they all care for different reasons. So if you're a Taft-Hartley union client in the U.S., you care about different things from a Dutch pension fund. But increasingly, people care how you make your performance. So I think of it as a profound change and a massive opportunity to differentiate firms across the industry.

So we have made a huge investment in data, in embedding the thinking in both our public and private markets thinking, but also in rethinking product design, getting inside -- working alongside development agencies to do blended finance, you know, everything from microfinance doing Asian female empowerment right the way through to Article 9 impact funds in Europe through to sort of plain vanilla energy transition mutual funds.

So it's a massive change. And I think the industry hasn't yet comprehended its -- you know, quite the significance of it. And I think it's become a massive industry for regulators as well. And I do fear that in an attempt to fight what they fear is greenwashing, they're killing the beautiful butterfly whilst it's still a caterpillar, you know.

There's a danger that we regulate what is good thinking out of recognition, which is going to be a, you know, a shame because this is about individual preferences, not what a regulator thinks should be an answer to what ESG equals. It's -- it doesn't work like that with food. It doesn't work like that with investing.

Joseph Cass

Great. And Peter, Schroders acquired a stake in a blockchain and digital asset-focused asset manager, Fortius. So what role do you think digital and crypto assets could play in the institutional investment world?

Peter Harrison

So look, I'd make a massive distinction between crypto, which is, you know, in the current environment, pretty well uninvestable for most through to blockchain, which I think is a transformational technology. So a big bifurcation there. But look, mutual fund -- we passed peak mutual fund. The clue is in the name, the 1940 Act.

This technology is 80-something years old. It's not going to be the thing that people default to in the future. It's already not the thing in the U.S., and it will increasingly be challenged. And I think the ultimate form of alternative will be some form of tokenization. And so you're going to have that done on a piece of blockchain.

And it's very timely because you've got this huge pressure on public markets, a massive shrinkage in the number of public companies, and more and more people thinking, how do you democratize private markets? And so you've got this coming together of old technology on the one hand of mutual funds no longer appealing in most of the major markets.

You've got the private assets opportunity and you've got the technology. So I think it's one of those interesting moments where three things are colliding, and you could get quite rapid acceptance.

Joseph Cass

Fantastic. Dan, S&P Dow Jones Indices has a range of crypto indices. You got the bitcoin index, the Ethereum index and many more. What has been the level of interest in these products? Who's interested? And has that interest grown or dampened over time?

Dan Draper

Yes. Well, Joe, if I could just kind of echo, I think Peter's comments were fantastic regarding, I think, the digital asset space in terms of the relevancy and kind of the future. I think the technology underneath it, the blockchain is -- or blockchain is very, very applicable and it's going to be increasingly necessary. And this broader movement of the investment world from analog, and I love the '40 Act analogy, the daily pricing of a fund to intraday.

And I would argue even like ETFs, you know, were really probably a first significant step in that digital transformation. And now we're getting more into the content itself and obviously, the technology. And if you think about just on the blockchain itself, I mean, the journey we've been on the passive investing, taking out intermediary cost, these are things that are going to benefit end investors enormously around asset allocation.

I mean we estimate just from our S&P 500, the MidCap 400, and then the SmallCap 600 that investors have saved over $400 billion in fees over the past 26 years comparable to the older analog technology, you know, in mutual funds. So if you really look at that, if you think about being able to offer the customization, the more precision and skilled asset allocators like Schroders and many other firms around the world on behalf of their clients, again, these should be very beneficial to larger investors.

And ultimately, any successful marketplace is predicated on one thing, and that's trust. And I think being able to get more information, more timely is something that hopefully builds, you know, overall better ecosystem. And then just quickly looking at, you know, digital assets or crypto specifically, if I think about from an S&P Dow Jones perspective, you tend to see initially markets absorbing new information, right?

And putting together, what does this information mean? And on a linear basis, this is normally a barometer, right? Give me an idea back in the late 19th century, I see all these railroads growing, and I'm trying to estimate the size of the U.S. economy. Well, hey, maybe the U.S. stock market, and I can do the rail index, which later became the Dow Jones Transport and then later Industrial Average.

These were barometers that we're trying to measure some level of human progress or even economic growth. And the barometers then became benchmarks. So now I've kind of defined a market with industry groups, and now I can really see from an investment perspective relative how it's doing. And then what we've seen in the last 20, 30 years is then the barometers and the benchmarks, and now benchmarks have become investable indices, right, or kind of, you know, more precise tools.

So we see that, you know, in the -- I think in the digital asset or crypto space now, there's information we're trying to -- and that's where we use a firm called Luca in terms of our data, trying to find the best data, build the benchmarks. And then frankly, it's accelerating is then taking those benchmarks into potential investable products. But we have to do this in a way where the ecosystem is being built properly.

And then, again, skilled investors and fiduciaries can then determine, you know, are there real risk premia? Or there's real diversification benefits, you know, for them to really use these digital assets and, you know, crypto assets.

And we're really in the midst of it. And finally, kind of your question, I would say is that we are seeing increasingly with all the different exchanges around the world and 24/7 pricing, but we're seeing more and more investors wanting this information, you know, looking at the barometers and trying to kind of measure the impact.

We are seeing some early-stage investment products, typically things like structured products, and there are some kind of nascent kind of ETFs that are off the market. But I think there's a lot more to be built around that ecosystem.

Peter Harrison

I think Dan makes a great point, Joe. It's how you create that ecosystem, which gives investors the confidence and the reliability that they can build a longer-term mindset. And we all -- we're in the early years of something which is clearly going to be a much, much bigger force. But -- and how you provide that infrastructure is going to be a key part of making it a mainstream applicable thing for pension funds and for other investors.

Joseph Cass

Fantastic. Thank you both. Peter, I wanted to get your thoughts on private markets, what role they can play? And also, how are you approaching them as a firm?

Peter Harrison

So look, I think what we've seen over the last, you know, 20, 30 years is a significant shrinkage in the number of public companies down by, what, 50% or so. And for me, you've seen an equivalent and almost mirrored rise in the number of public companies. And so there are several things going on, given the growth of passive, et cetera, will need to think about what is the long-term optimal form of ownership for a business?

How can public companies have the time frame and persistency to make long-term investment decisions with -- given the pressures that are on them. And I think that, that model is being increasingly challenged because private markets have very large long-term stable pools of capital available to them.

And they have the ability to incentivize management to deliver against really stretching goals that might be a multiyear focus. So to my mind, as an investor, as a firm looking to provide their clients with a range of different solutions to a problem, you need to be able to cross that public and private divide pretty seamlessly.

And the analogy I'd make is if you go back when I started work, equities and fixed income used to exist in two different buildings, and they never spoke to each other. Now equities and fixed income are pretty, you know, joined at the hip and the world is very joined up. But the same is true in public and private today.

The firms are different. The structures are different, the compensation arrangements are different, and they're coming together. And I think that as we think about what the investment portfolios of the future look like, you're going to see a much larger allocation to private markets in people's portfolios.

And how we facilitate that with the right wrappers, the right performance measurement, the right fee structures is going to be a huge part of the challenge for the next 20 years. So we set about building a big integrated private markets business across the four pillars of debt, equity, infrastructure, and real estate.

And increasingly finding that if you blend that, particularly with sustainability, there is a huge opportunity. And the reason I mentioned sustainability is we've just finished COP27. We've got to build the largest industry in the history of mankind, and we've got 30 years to do it. And that's the decarbonization industry.

And how we fund that will be largely from the funds that, you know, the clients whose money we are entrusted with at the moment. So figuring out that transition, there's going to be a very significant opportunity. So for me, it exists right beside public markets, and there's a very large movement of funds, which is happening between the two, which is going to pose all of us some quite big challenges.

Joseph Cass

Great. Thanks, Peter. Dan, what do you think the future holds in the indices side of things? So how will investors and market participants use indices going into 2023, but also beyond?

Dan Draper

Yes. Well, as I kind of mentioned earlier, I think this kind of evolution from a barometer initially, let me measure something because now data is becoming so much more widespread in many ways. And those data sets can be extremely valuable. They can also be very commoditized. So I think being able to look at those data sets with robust analytics, again, the experienced judgment of investment professionals to really kind of, you know, use that going forward is, I think, really crucial. So I think it's our job is to continually, you know, look for new information, new data represented in our indices and benchmarks to continue to reinforce particularly the liquidity ecosystem in the major benchmarks, things like, you know, the S&P 500.

But also, we've talked about the emerging areas like in sustainability, digital assets, how can we responsibly bring that information, work with every -- on this ecosystem, we've mentioned a couple of times, everything from the liquidity providers and market makers on the one end to these long-term asset owner, asset allocators, if you will, at the other, we need to be able to bring in that commonality and kind of the marketplace together.

So our job at, I think, S&P Dow Jones Indices is to always be customer-focused and value to engage and where -- you know, like with Peter and Schroders and other clients where they're thinking about this product development process, where can we partner earlier with data sets, with analytics and really help them think about not only their own investment strategies, but this that helps rebalance portfolios, helps hedging, transferring risk, for example, among insurance companies. So it's really kind of being a part of that in a very crucial for us, independent and transparent way that the marketplace can rely on.

Joseph Cass

Great. Thanks, Dan. Peter, Schroders is a 218-year-old family business with the Schroder family still owning around about half, I think, of the company. So interested to know what is your personal relationship like with the Schroder family? And as a CEO, do you feel this enormous pressure to maintain and also grow such a long-standing business?

Peter Harrison

Yes. Look, I can't imagine anything better than to have a group of shareholders who are so committed to the business. So outside our boardroom, we've got a picture of, you know, the five generations of Schroders who went before. And they do mark a certain, you know, significance in the firm of longevity persistency.

And around the boardroom table, the discussion will be how do we get this right on a 20-year view? And that's a real privilege to be a CEO of a business where the desire of the shareholders is a 20-year perspective of what needs to be done. So now I would argue it's actually harder to get it around on a 20-year view than it is on a quarterly view, but it's a huge opportunity to think deeply about what one needs to do to build the best possible business.

And to have that clarity of support with people who are genuinely lovely. I mean they could not be nicer, better intentioned people who also have a great sense of other stakeholders. So you -- there are family-owned businesses where shareholders are preeminent, but I'm really fortunate that the Schroder family care deeply about our staff. They care deeply about the impact on society.

So I consider myself incredibly lucky -- but I'm under no illusions. My job is to leave the business a little bit better than I found it and it ain't going to change, you know, from an ownership perspective, it's about doing that right job. So it's — in a one sense, it's pretty straightforward.

Joseph Cass

Great. And Dan, you've been, you mentioned before, the CEO of S&P Dow Jones Indices for 2-ish years now. So interested to know what aspects of the role do you enjoy the most? And also, what aspects do you find most challenging?

Dan Draper

Look, I enjoy the people. And I think in terms of starting with kind of my team, we have an incredible group of really dedicated and super talented individuals. So I think the ability to come in every day is certainly different. We obviously have, it's the biggest index provider in the world, the most comprehensive range. I think Peter, you talked about the multi-asset class nature of investing today. And so the ability to come in and really work with an incredibly dedicated group is phenomenal. And look, I mean, they close second or even there is our clients.

I mean, again, with all the issues and the fast-changing markets that are happening and the different client channels we have, asset owners and asset managers and banks and -- all the way through just a variety of needs, it's quite fulfilling to be able to kind of look at these problems holistically and for us to bring, again, these data sets, but also kind of a different perspective to really help, you know, our fiduciary clients fulfill their duties.

Yes, and I think just, you know, the challenges are just having enough hours in the day. I think a lot of growth opportunities and even with our capabilities, I'm always challenging my team, how can we focus more. We really have to prioritize and something that's going to help us do that increasingly is technology.

And that's really where we're making substantial investments in our platform around data governance, overall kind of the tech stack and being able to even think about our independent governance processes, being able to do those even more responsibly as our scale grows.

Joseph Cass

Great. Thanks, Dan. So Peter, Schroders opened a new HQ in London. I think a year or two before the pandemic. I've been to it, lovely building, very nice. But I saw that you gave the Queen a personal tour of the office when she opened it. What did the Queen have to say about the building? And also, what were your lasting memories of meeting her?

Peter Harrison

The lasting memories is kind of very easy. She was just so keen to meet real people and spoke to everybody she could possibly -- you know, as we went around, she just was so engaging with individuals. Views on the building, I think she's seen there was a doctor, a dentist, a licensed bar. It probably wasn't -- you know. It'd be a shame if -- it's kind of -- it's a slightly more quirky building than most office buildings.

But my -- the pinch myself memory is just getting towards the end of the tour and I'm thinking this has gone well. I don't think I've made too many slip-ups. And I said, "Would you mind signing our visitors book?" And I've been told, if you're going to ask her to sign the visitors book, please make sure the pen works.

So I've made sure the pen works. Anyway, so I'm just quietly standing there and Majesty has taken off her gloves and picks up this beautiful ink pen and was halfway through signing the iconic Elizabeth when the pen stopped working. And she looked at me and I felt in my pocket and just to check I had a pen.

I mean she gave a little shake and thankfully, it started working. But that was probably the most heart-stopping moment I've had in my whole career when it stopped the Majesty signing a name in the visitor's book, so silly story, but it's the memory which will stick with me most clearly.

Joseph Cass

That's great. That's really great. So a question for both of you now. So lots of people listening and watching this podcast will aspire to become a senior executive or a CEO like you both are. So what advice would you give to an employee who wants to one day become a CEO of their company? So Dan, I'll start with you.

Dan Draper

Fantastic question. Look, I think it's a journey of continuous learning. I mean we've talked about -- I mentioned ETFs, digital assets or crypto, even, you know, a lot of specific areas of sustainability. Those didn't exist when I started my career. So I think the ability to, as everyone says, kind of follow your passion. But I'd say where you do have enthusiasm accounts for a lot.

But joining organizations or starting your own organization, that does value kind of lifetime learning. And I think that's something that not only takes you up the executive ranks, but, you know, even when you get to the top, being able to have an ecosystem, relationships, really where you can process and be exposed to new information and new ideas.

That's really what keeps you relevant. So I'd say for young people coming out, education that you've done is going to continue well beyond university. And just really, I think, associate yourself with organizations and individuals who are really going to kind of encourage and help you on that journey.

Joseph Cass

Great. And Peter, what will you be -- advice be to kind of aspiring CEOs?

Peter Harrison

So I think the first thing to say, Joe, is, you know, people who aspire too much can be pretty unpleasant individuals. So if you've got that ambition, hide it well. And the second I'd say is, you know, for goodness’ sake, be sure that this is something you really want because, you know, being authentic and being able to stay the course is something that -- I think that you've got to be the same person at home as you are in the office and that's a real challenge in some organizations. And the final thing I'd say is look outward.

As Dan said, I think there's so much learning to be done and competition is no longer an internal issue for corporations. It's how you constantly reinvent given what's going on in the outside world. So I think there's a -- be certain you really want it. But if you do, just don't show it too much, I guess, is the answer.

Joseph Cass

No, great. Great set of advices there. So Dan, I know you and your wife are lucky to have three daughters. I've now got two daughters, 1 and 5 years old. Firstly, what advice have you got for me here because I desperately need it? And secondly, how has your family supported you throughout your career so far?

Dan Draper

Yes. Well, I think the latter. I mean, look, my family is, yes, it's everything in terms of support to what I do. And I think kind of giving perspective and I think, you know, Peter's kind of underlying message of humility, certainly, there's nothing better than a strong family to not only support but to kind of keep you grounded and ensure that you have that humility down through that.

I think also just having, particularly children, but in our case is daughters, that's the future. And I think that's the real underlying purpose that if you think about our lot in life of working in financial markets and having kind of all the blessings for that also comes with that responsibility, you know, that we really do help promote, you know, doing well by doing good or whatever kind of motto you want to have.

Those are tangible things that hopefully you experience in your day-to-day life with your family. And really, I think that's where things around sustainability, having hopefully a healthier, better, you know, planet around us, but also, you know, these efficient markets we want to build to allocate capital and help society increase standards of living. All that really starts at home.

Joseph Cass

Fantastic. Peter, last question goes to you. So on this podcast, Fixed Income in 15, I usually interview kind of leaders, influential investors like yourself. So we've had kind of CEOs, CIOs, well-known personalities. Who would you recommend I ask to be a guest on a future episode of the show?

Peter Harrison

It's a great question, Joe. So look, I think there's -- somebody I've just read both his books back to back. And I think they both have pretty profound things for us all. And it's a guy called Mo Gawdat, who you may have come across. He wrote a book about happiness and then he's written another book called Scary Smart, which is the future of AI.

And I -- as I look at our firms now, more and more work is going on to how do you apply AI to our industry? And how do you think about what the ramifications for that are? And Scary Smart is a fascinating book about the damage that's going to be done and the issues we face as we let AI loose on our businesses and mankind. So I would recommend Mo Gawdat that -- he's a guy I can't hear enough from at the moment.

Joseph Cass

Excellent. I would definitely take him out. Well, thank you very much, Peter and Darren, for your time. Great discussion. And for everyone watching and listening, see you next time on Fixed Income in 15.