Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's exchanges and clearinghouses around the world. And now welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
The New York Stock Exchange is home to some 2,400 listed companies, headquartered in diverse countries and representing sectors as broad as the global economy itself, yet only a distinguished few of these enterprises trading just a few floors below where we record today enjoy the distinction of being listed for over a century. This remarkable longevity underscores their resilience and enduring impact on the market. The list of Centarian companies on the NYSE includes some of today's most renowned brands. Con Edison, ticker symbol ED has been trading since 1824. Procter & Gamble, ticker symbol PG was listed in 1891. Shares of Coca-Cola, NYSE ticker symbol KO commenced trading in 1920. And what was once known as International Business Machines, now known as IBM, NYSE ticker symbol IBM initially went public in 1916. But, preceding the inclusion of any of the aforementioned companies among our August roster, the New York Stock Exchange established 232 years ago by 24 traders beneath the Buttonwood tree in 1792 saw the Bank of New York earn the distinction of the inaugural enterprise to publicly trade on our floor.
This pioneering event marked the beginning of a legacy that would shape the course of financial markets for centuries to come, symbolizing the birth of modern securities trading. Today, under the ticker symbol BK, BNY oversees nearly $50 trillion in assets, serving a client base that encompasses over 90% of Fortune 100 companies. Established by Alexander Hamilton, you've heard of that guy in 1784, BNY bests us in cumulative chronology now observing its 240th birthday, all while upholding a steadfast commitment to innovation and carrying forward a legacy of pioneering industry firsts. An achievement initiated by Secretary Hamilton over two centuries ago. Leading BNY Wealth is today's guest, Catherine Keating. With a client-first focus, and an active wealth approach, Catherine and her team provide a unique experience for each individual investor that allows them to confidently navigate the unpredictable and unexpected.
To celebrate BNY's milestone and discuss the bank's approach to wealth, Catherine joins us Inside the ICE House to recognize the history of the institution, and also look ahead to its future. We're going to dive deep into her career journey, and detail some of the latest market trends that impact how she and her team advise their clients. Our conversation with Catherine Keating, global head of BNY Wealth is coming up right after this.
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Josh King:
Welcome back. Remember to subscribe wherever you listen and rate and review us in Apple podcasts so that other folks know where to find us. Our guest today, Catherine Keating is the global head of BNY Wealth. That's NYC Ticker Symbol BK, and a member of the Bank's Executive Committee. Prior to joining BNY in 2018, Catherine served as president and chief executive officer at Common Fund, spent two decades at JP Morgan Chase, that's NYC Ticker Symbol JPM, in numerous leadership roles. Catherine, thanks so much for joining us inside the ICE House. Welcome back to the New York Stock Exchange.
Catherine Keating:
It's great to be here, Josh. Thank you.
Josh King:
Your first memory of coming to this building across that career that we just talked about?
Catherine Keating:
I vividly remember my first time visiting the New York Stock Exchange. I was new in the industry. It was the 1990s. The floors were teeming with floor brokers running around, because we didn't have electronic trading yet. So I'll never forget my first visit to this historic exchange.
Josh King:
On May 17th this year, the NYSE celebrated its 232nd birthday. But even with our long history, beginning with the signing of the Buttonwood Agreement by those 24 stockbrokers in 1792, we sit, as I noted in the intro, eight years junior to your 240-year milestone that BNY is going to mark just four short days from our recording. I saw a post, Catherine of our Chris Edmonds, the head of fixed income and data services at Intercontinental Exchange with your CEO Robin Vince in Washington a couple of weeks ago to kick off the festivities. What's the celebration been like leading up to the occasion? One that's going to feature I think an NYC bell ringing later this month.
Catherine Keating:
We have a lot to celebrate this year. We have the obviously 240th anniversary of Bank of New York, and we're a generational firm, so it's great to be with you, the younger generation at the New York Stock Exchange, eight years younger. But we also celebrate the 155th year of the founding of Mellon Bank. And when you really think of those two institutions, obviously Bank of New York founded 1784 before we even had a constitution or a first president or a first stock exchange really powered the development of the financial system. And then you think of Mellon Bank coming along, founded by the Mellon family in 1869 right after the Civil War. And that bank and family powered the Industrial Revolution that carried this country through the 19th and the 20th century. Investments in steel and transportation and oil and aluminum, and of course the bank itself. Just an amazing, amazing set of milestones for us to mark this year.
Josh King:
The Bank of New York, founded by Alexander Hamilton in 1784, the oldest bank with the longest continuously operating company in New York City. I want to hear your CEO Robin Vince talk about the importance of 240 years and reflect on all the milestones that BNY has achieved.
Robin Vince:
140 years is a long time. We've operated over four centuries of history, particularly New York history, and we're getting together with some clients to actually enjoy that and make sure that we mark the moment. We're actually the oldest operating, longest operating company in New York. We're the oldest member of the S&P 500 and Fortune 500 and the first stock listed on the New York Stock Exchange. But we're looking forward. So innovation at the end of the day is an important part of the story too.
Josh King:
Innovation at the end of the day, an important part of the story too. Catherine, how is BNY, particularly your unit, BNY Wealth, contributing to the commitment to innovation that helped Hamilton establish not only the bank, but also the U.S. Mint in 1792?
Catherine Keating:
So let me talk about wealth management specifically, because over the last 30 years over my career, we've really seen the retirement infrastructure in this country change, right? We're a financial infrastructure firm, a financial services firm, and we're well aware of the change in retirement infrastructure. And that really has to do with the fact that 80% of Americans work for some sort of corporate entity. It could be a big public company listed on your exchange. It could be a small private company, 20% work for the government or nonprofits. But those 80% that work for companies 30 years ago tended to retire with a pension plan.
Josh King:
They sure did.
Catherine Keating:
They sure did. Fast-forward to today, that's not the case, right? Over the last 30 years, companies in this country have really shifted from providing a defined benefit plan for the rest of your life, to a defined contribution plan. And so to our mind, what that means is the wealth management industry has essentially gone from an and, I have my pension and my assets that I've saved and invested, my savings to an it. We're it. And that's really, really important because the other thing that has accompanied that change is that today in the financial markets in this country, the U.S. retail investor has many more assets than the institutional investors. So your institutions, your pension funds and your insurance companies and your endowments, individual investors have 55 trillion of financial assets. That's two times the size of the U.S. economy. It's twice as large as the institutional market in this country, and it's growing three times as fast.
And so that is a very, very important segment for our company, obviously, but it's also important for the U.S. economy because we all talk about the fact that the consumer drives two thirds of the economy, but we don't tend to talk about the fact that they actually drive two-thirds of financial markets as well. And that's very important. And so we've really had to change our business and innovate around that fundamental change.
Josh King:
As you talk about that and as you think about all the inflows coming into a defined contribution plan, curious sort of what it was like for you growing up and watching your mom and dad and how they prepared for retirement.
Catherine Keating:
So when I think about growing up, first of all, let me say that it never occurred to me that I would be working in the financial services industry, and it never would have occurred to me that I would be sitting here with you at the New York Stock Exchange, a place that I am fortunate to visit pretty frequently. So it's just amazing for me to be here. I grew up in Washington D.C., and the careers that I saw up close and personal in my neighborhood and my parents, no one was in finance. I didn't know anybody in finance. I knew the sorts of careers that you would see in Washington D.C. or at least back in the day.
Josh King:
Government diplomacy.
Catherine Keating:
Government, my summer jobs, right. I worked at the Department of Navy one summer. I worked at the Government Accountability Office one summer. My dad was a lawyer, my mom was a teacher and became a librarian. We had academics and doctors and people in media and real estate. It never occurred to me that I would go into the financial services industry because I just wasn't aware of it. And so one of the things that makes me excited to be here and be talking to you is to help make this industry more visible.
Josh King:
Absolutely.
Catherine Keating:
Because it's a great industry and a great career.
Josh King:
I want to get to your entree into the industry, but you got your undergraduate degree at Villanova, you got your law degree at Virginia, and eventually became a partner at Morgan Lewis. What initially inspired you to pursue that career in law, and how did it eventually segue into finance and wealth management?
Catherine Keating:
So it was a career that was visible to me, obviously in Washington, lots of lawyers. My dad was a lawyer, and he died when I was a little girl. I was eight years old. And I had seen my mom, she's a teacher and became a librarian. And my dad who was a lawyer, and I think I decided as an eight-year-old, when he died, I was going to be a lawyer just like him. And I didn't really question it. I went off to law school, and it wasn't, I got to practicing law that my clients were in the financial services industry. They were big asset management companies, or actually small ones growing to be big ones because this was back in the 90s. And I realized that the stimulation of markets and economies that change and challenge you every single day was much more exciting to me than the law, which is important as it is. It changes very slowly and deliberately. And so I made that change. It was the right one for me and I've never turned back.
Josh King:
So out of Morgan Lewis, Catherine, you then had an 18-year career at JP Morgan Chase, followed by becoming president and CEO of the asset management firm, Common Fund. Then you get to BNY as Global Head of Wealth in 2018. I suspect the first a hundred days or so of any new role tend to shape the trajectory of years to come. How did you apply the insights gained from those earlier parts of your finance career and what you were going to bring to BNY?
Catherine Keating:
That's a great question, Josh. And when I really think about the first hundred days, but in the context of my larger career, I actually think most of us, certainly I look at my career in thirds. And the first third for me was being a lawyer and getting exposed to the wealth management industry and joining it, right? And that first third of your career, you're learning, learning, learning, learning. You're a sponge, you're absorbing everything you can. And then the second third, you're beginning to apply and do it yourself. So my second third was really wealth management, but also spending a lot of time in the asset management industry. So in the wealth management industry, you work with individuals and families, in the asset management industry, you work with institutions. So I had that. And then coming back to wealth management here at BNY to me for my third, third was the opportunity to take all of those learnings from working with institutional investors and apply them directly to individuals.
Because with this shift from defined benefit plans to defined contribution plans in your own savings, every single individual needs to operate like an institution. And so in my first a hundred days, since you asked, one of the things I said to our folks, because we have been probably the first wealth management business in the country, when Alexander Hamilton died so tragically in the duel, he left Eliza and seven children. He did not leave a lot of money. So all the wealthy New Yorkers raised money in the 1800s version of GoFundMe, and they set up a trust for Eliza and the kids and guess who they appointed Trustee? Bank of New York. So we've been in the wealth management industry probably for as long as there has been one. But today, back to your question, what I asked our team was, okay, with this two centuries of experience, what have we learned about the practices that make families sustain their success?
So the first thing we did was we took our brain trust offline for a while and we had them really analyze our history and our learnings from working with families for so long. And we concluded the families need five disciplines and they just work at them year in and year out. And the first one is not going to surprise you. It's investing. It's investing, right? You've got to have a good investment strategy. And it's the basics that really matter. The basics really matter. You need to be diversified, you need to stay invested through the cycle. If I think about since 1990, if you stayed invested in the S&P 500 to today, you would've earned about 10%. But if you missed the single best month of every year, you earned 3%. So the ability to stay with it and stay invested through the cycle is what has made institutions so successful. And so we work on that with our clients.
The second thing institutions really focus on is balance sheets, cash flows, right? We focus on that too, because you have to be a chief investment officer, you have to be a chief financial officer, right? If you're going to be responsible for your own financial future. And so we really help clients think about their balance sheets and when should you borrow and how much should you borrow? Because balance sheets are a tool.
The third discipline that you have to focus on is spending. Every institutional investor knows what they spend. Your college endowment knows what they spend. Private foundation knows they have to pay out 5% a year, every institutional knows, but nobody requires an individual investor to know how much they spend to know whether it's prudent to measure it or not. And it's the only thing you control. You can't control the market, you can't control inflation, but you can control what you spend every year. So that's the third one we focus on.
The fourth one, and those three, by the way, investing, balance sheet, spending, every institution focuses on those, but there are two more that are unique to families. The first one is managing taxes, managing for after-tax returns. Institutional investors don't pay tax. We pay tax every year, every generation. And then the last one is protecting what you have. And in families, that tends to involve trusts. In a company, you have bylaws and bylaws tell you, this is your mission and this is how you're going to govern it, and these are the decisions you need to make. And a trust are essentially bylaws for families. And they have all of those guiding principles about mission and decision-making and governance. And that tends to really matter in sustaining wealth over time.
And I'll tell you a story that happens to be a true one that happened just in the last year to me. We had a client in visiting us that had been a client for over a hundred years, and I stopped in to thank them. And I said, "I just want to thank you for the chance to partner with you and serve your family for over a hundred years." And the client said to me, "Oh no, we want to thank you because you've been serving as our trustee all of this time. You've helped to follow our mission and govern this wealth well, and we don't think we would be here if it weren't for you." So it is just so humbling and inspiring when you can have that kind of impact on a family.
Josh King:
You come into a role with clients that are third generation over a hundred years. What is your study of their legacies, their histories, understanding who they are, whether they come in to see you in New York or you hit the road and see them where they are, how do you do that?
Catherine Keating:
So we have clients that have been with us over a century. We also have clients that have been with us for a few months. So we have all sorts of clients. And the thing about families is that they're all different. They're all different. Their income levels are different, their asset levels are different where they live, but the thing really makes a difference is their goals are different, right? Every institutional investor knows what their goal is. Every family has to decide it for themselves. What is it that we want to do with the wealth that we've accumulated? And the families that really succeed over time tend to succeed because they focus on the family as an enterprise, having a shared mission, shared values, shared agreement about what the wealth is for, but also these institutional disciplines around how they manage it.
Josh King:
Robin Vince, who we heard from earlier, became the CEO of BNY in 2022. I remember the day clearly because we had the cast of Hamilton out on Experience Square. I don't know if you were there that day, but it was like there'd never been such beautiful music coming from the corner of Wall and Broad Street. How has his leadership transformed the bank just over the last two years that you've observed? And in what ways has his guidance benefited you and your colleagues at BNY Wealth?
Catherine Keating:
I mentioned inflection points earlier, right? Bank of New York founded at a real inflection point for the country. Mellon Bank founded at a real inflection point for the country. We think that we're at another inflection point in the financial services industry, and we need to innovate and evolve as we had through our history. And Robin is leading us through that, and he's really doing it in a couple of ways. One is we're refocusing on our purpose as a company. We're refocusing on the values that we stand for as a company, but we're also very focused on how the financial services industry has changed and what the needs are for a modern financial services and infrastructure firm. And so if I think about AI as an example, AI has been around for a while. This is how we've been automating processes for years. But Generative AI, which goes beyond that and develops models and actually ideas, that is very new.
And we think that is very important, not just to our company and the financial services industry. It's very important to the economy. Because if you think about the way the economy grows, it grows by either adding more workers, or increasing productivity or doing both. So typically you do both. But what you've seen in this country since the 1990s is the productivity growth has actually exceeded the number of workers that we add, right? So productivity growth is very, very important. And why is that? Well, all the developed economies in the world are aging. The workforces aren't necessarily growing in huge numbers.
So productivity growth is critically important to economic growth. And when we look at the potential of AI and we say, "Well, we've had all sorts of technological innovations that have added productivity, the personal computer, the internet, now we have Generative AI. We think that when it comes to growing the economy, generative AI is going to be far more important than any of the others. The internet gave us about 70% at 70 basis points of productivity growth. We think AI could be a percent and a half to 2%, and that can be really significant.
Josh King:
Your team recently wrote a piece on the BNY Wealth website, and it's titled AI, its Promise and Investment Impacts. We talked about with many guests that we've had on the show about how AI has transformed the workplace, added to what you just said. But from your perspective in wealth management, how are you advising your clients to allocate their money when it comes to AI investments?
Catherine Keating:
Well, look, we think AI has the power to transform virtually every industry, right? Every industry has customers and supply chains and products and marketing and sales and things that can be made more productive. We work with a lot of different kinds of clients. Some of our families are literally the size of institutions. They have family offices. We work with 300 of them, coincidentally, we just had our annual conference with them last month actually in May. And we asked them what they thought the potential was for Generative AI, and we asked, what industries do you think it's going to impact the most? And interestingly enough, the two they cited most were the technology and software and chip industry. That doesn't surprise us, the providers of all this, but the second one that they identified was the financial services industry. And why is that? Because we have so much data, and if you think about our firm with all the years of experience and 50 trillion in assets, we have enormous amounts of data and we're already seeing it increase productivity at the company.
I'll give you some examples. So when you're a major financial services firm and clients are considering hiring you, they often send you RFPs, requests for proposal. They can be very long. So if you worked at our company, the first draft of your RFP could now be generated by AI. Then humans take over. Another example. So AI can help with productivity. It also helps with modeling. And if you think about our business, we are a modeling business, whether we're an investment firm, whether we're a bank, we're always doing modeling about how investments might perform, loans might perform. We've now, and if you're going to underwrite a complicated loan, you need a lot of data. Well, we are now able to use AI to generate that first level of data that you need to analyze to then get the loan approved. That's taken the time it takes to underwrite a complicated loan, shaved a whole week off of that, right? So from a three-week process to do a big complex loan, it's probably now a two-week process, and it'll be probably even shorter in the future. So we're seeing evidence of this already.
Josh King:
But Catherine, I run a hundred-year three-generation family office, and I knock on your door and I say, "My portfolio needs to represent a thoughtful and aggressive investment in AI in the future." The article that I mentioned earlier talked about a McKinsey study that estimated that AI is going to boost GDP by 1.3 to 2.1% by 2030. How can individual investors or that third generation family position themselves to benefit for the long-term growth?
Catherine Keating:
First of all, if you're an investor in the S&P 500, you're already being positioned to participate in that growth. We have some of the world's leaders in AI in the S&P index. So you're already positioned. Our family offices, they're looking for direct investments on the side that they might be investing in. But for the mainstream investment client, if you're invested in the S&P 500, you already have significant exposure to AI.
Josh King:
So we've talked a little bit about how within BNY automation, like Generative AI is cutting down significantly on the hours and human labor, at least on the first draft of an RFP, but to sort of come back to the very human element of seasoned executives rolling up their sleeves and collaborating for this inflection point, that is the next chapter of BNY's history. You work alongside leaders that oversee various branches of the bank, clearance, collateral management, growth ventures, investment management, asset servicing. What actual formula do you use to collaborate to drive the overall success of BNY?
Catherine Keating:
So I would say we use two formulas. One is culture, and then the other is operating model. So our culture is a very collaborative culture, but we also have an initiative that we call one BNY, right? Where we are deliberately collaborating across the company, and that is really leading to more growth, right? Doing more with our clients across the company is really lifting the organic growth rate of the firm.
But the other is operating model, right? And when you think about scale companies, the companies you tend to think of are in the technology industry. Think of Microsoft, think of Amazon, right? They're scale companies and how do they scale their business? Their operating model is really related to platforms. They have a single platform and they just extend it to other uses. If you use Microsoft, Word and Teams and all the things that they have, they just keep extending it. So we are transforming our operating model to also think like platforms, loans, a platform. You might be an individual investor taking out a mortgage. You might be an institutional investor doing a big commercial loan, but loans are a platform. And so we're moving to a platform's operating model, which we think is going to be more seamless for clients, faster. It's going to enable us to be more laser focused on innovation in that particular platform, and we're very excited about the potential of that for the future.
Josh King:
Given the change Catherine, and we were talking about 9/11, that was certainly one inflection point here, COVID another one 20 years later, given the change in today's workforce, there is this noticeable shift toward remote or hybrid work arrangements. Video communications become prevalent. It replaces a lot of the face-to-face interactions that might've happened prior to 2020. This is an issue very close to the leaders of a lot of banks, including our own CEO, Jeff Sprecher. How has this evolution and communication impacted your team and the relationships that you form with your clients?
Catherine Keating:
So listen, we believe in the power of culture. We believe in the power of being together for the culture that it creates, the innovation that it drives. So we are highly, highly committed to that. But we're also committed to flexibility, to flexibility. We learned during the pandemic that we could be more flexible. And so it's being together, but it's also being flexible when employees need that flexibility in their day. And we're highly, highly supportive of both of those.
Josh King:
Through the last two and a half centuries, and you were just talking about this, with BNY preparing to turn 240 in just a couple days, this client experience has always been among the highest priorities for you. How do you ensure that with the new technology, with a different type of workforce, that the principles fostering the basic client experience a hundred years ago continues to thrive at BNY Wealth?
Catherine Keating:
Well, we do it by the way we run the business, of course, we start our days together every single day. A morning markets call, all of our client teams either in the room, if they're in New York, on the phone, if they're in another office, if they're actually on the West Coast, they get to listen to a replay. By the way, we use AI now on the call so you can find whatever you need whenever you need it. So we do it by how we structure our days, right? We're extremely client-focused. We start our mornings together focused on clients every Tuesday. We end our day together in a different type of call all related to clients and trends that we see there.
But we also know if we're doing a good job because we ask them. We survey our clients every single year, detailed survey questions. And then you also know in this industry how you're doing with your clients because clients vote with their assets, they either bring more or they take some away. So we know how we're doing, but clients lead industries. So we ask our clients all the time and we get great suggestions.
Josh King:
You are a relatively active person on social media. You're not crazy on LinkedIn. But we do see a lot of your thoughts coming through over the months and years, and you can sort of track the type of things that you talk about. I noted the other day your post highlighting BNY's inaugural family office investment insights reports, and then there was a point last year, you commented on an image sometime ago of QXO chairman Brad Jacobs, a recent and beloved guest on this show standing in front of the floor of the New York Stock Exchange. Maintaining a regular presence on social media wasn't exactly a job requirement when you were back at JP Morgan I suspect, what's the duty of a business leader these days to stay engaged publicly? Also saw some of your recent appearances on CNBC.
Catherine Keating:
So look, I think I'll go back to where I started. I wasn't familiar with the financial services industry growing up. It was not visible to me. And yet it's a very, very important segment of the economy. The second-largest sector in the S&P 500 is financial services. And so I think as an industry executive, part of my job, and I know all my colleagues feel the same way, is to make the industry visible. Let them know how important it is that you can have a great career here. And also for me to let people that don't know that this industry is diverse, that it is diverse, that it is diverse, and it's very, very important.
Josh King:
You talked about your five focus areas, investment, balance sheet spending, managing taxes, protecting what you have as the way you approach your relationship with your clients. How much of your role involves educating clients on the best practices and strategies for this long-term wealth? The idea that staying in the S&P for a long period and not missing those key months is going to get you that 10% return. I imagine there are times you might scratch your head at something that a client says. How do you manage times when your advice and their interests might diverge?
Catherine Keating:
One of the things about money is that we think it's math. We learn about money in math class. And for institutions, money is largely math, right? If you serve on the board of your college or on the board of a pension, it's largely math. I have these obligations here in the future and what is the portfolio that's going to help me achieve them? But it turns out that for individuals, money is very emotional.
It's very emotional. And not only is it emotional, I mean if you think in a family, money is power. Am I going to get an allowance? Money is values. What does our family spend money on or not? Money is mortality, thinking about what happens if something happens to you. So it's very, very emotional. And so part of our job as wealth managers is to help take the emotion out. Because it turns out that our brains are wired to do the wrong thing at the wrong time with our money, honestly, because we feel the euphoria of a gain less than the pain of a loss. And so one of the ways that we help to take the emotion out is by adopting institutional practices. So every institutional investor has an investment policy statement. Policy protects you. When your portfolio balance goes down, you rebalance.
It also protects you if you're an individual. And I'll give you a real live example since you mentioned the pandemic earlier. So if you go back to March of 2020, when at that point, half of the global economy had shut down in a month, the S&P 500 was down 35%. Interest rates were as low as we'd ever seen them in our lifetimes, and most of our clients were at home. And so we do periodic calls with our clients, and we usually do them on a Monday after the market closes. And this happened, we happened to be doing one of those calls that Monday, we had more clients than have ever dialed into one of our calls, dial into that particular call. And we had really worked as an investment team, and we told our clients on that day, and it's hard. Your portfolio has gone down 35%. You're desperately worried about your health and everyone else's.
And we said to them, "We think we need to rebalance your portfolios. You should rebalance. You should not be selling equity right now. You should be buying. And we're highly confident that 12 to 18 months from now, you'll be happy that you were a buyer today." We only got one thing wrong. They were happier in six months. That decline was so fast, you remember you lived it. That decline was so fast, but so was the recovery, so fast, by August. And so just taking the emotion out and saying, "Time in market is so much more important than timing the market." It's really hard to time the market. You need to be focused on that long-term goal, stay invested, rebalance when it's hard. And what we see, because we can follow the whole industry, right? As BNY, what you tend to see with fund flows is that that's not what people do. That's not what they do. It's not what they did in the financial crisis.
When the market dropped, they plowed a trillion dollars into bonds and stayed there for a couple of years while the market was recovering. It's also not what happened in 2020. Clients were not, look at the industry fund flows. They were not going into equity until the end of the year after you've already seen the rebound. So we just try to take the emotion out because the power of compounding, staying invested like an institution, being in the market is so powerful.
Josh King:
I might be one of those nervous wealth management clients who would be asking for a conference call with Catherine Keating at BNY here in 2024 in addition to 2020, because I was told at the beginning of the year that the Federal Reserve might be on a path toward interest rate reductions. I haven't seen that yet. I've got a looming presidential election where I don't really know the outcome. I'm nervous about what November, December, January, may bring. We know what happened four years ago in January, 2021. Is there anything else that you tell your clients who are fretful and can't make sense of a year that you were given some forecast last November, December, January. And it's not turning out that way.
Catherine Keating:
It's not turning out that way. But your portfolio is doing quite well, quite well. If you're invested in the market, if you're invested in bonds, your portfolio is actually doing quite well. And so that goes back to you need to focus on the long-term. You really need to focus on the long-term. We're all investing for a long time the rest of our lives and maybe even beyond. And so markets can go up and down and up and down, but the long-term trajectory of that upward slope is actually quite consistent. You raise a couple of questions, elections. The truth is that markets have proven to do well in all sorts of political environments. You could have the White House and House of Representatives Senate all controlled by one party or another, or you can have what we usually have, which is a mix. And markets have proven to do well in all sorts of political environments.
If you do ask us about what we think are sort of this significant risks that we're really watching out there right now, I would say geopolitical risk, and I'm talking about something that would really disrupt the global economy or supply chains. We do worry about a risk like that, a geopolitical event, you can generally rebound from relatively quickly, 9/11, but something that really disrupts the global economy we worry about. And the other thing that we worry about frankly is debt levels in this country, and deficits. And so we think those are the sort of big macro risks that we focus on. But the truth of the matter is, the U.S. economy is quite strong. Yes, there are signs of it weakening, but not breaking in any way, not breaking in any way at all. U.S. financial markets are quite strong. They've outperformed the rest of the world really for 15 years.
And we do think that inflation will come down. We're stuck in a sort of sticky 3, 3 1/2% range. It's going to take a little time to come down. You're seeing lots of deflation, but not in services as you know. And so that's just going to take time. But the truth of the matter is, markets can do just fine with 3% inflation. Now they can't do just fine with really high interest rates forever. So we do need to see them come down, but we're pretty confident that we will. And that, by the way, if you got out of cash and got into bonds, you would see not only nice yields, but some appreciation when those rates come down. We think that's a real opportunity.
Josh King:
Back in November, you wrote an article for Barron's titled How to Invest Like an Institution, Get Into the Private Markets and Don't Get Emotional. And in that piece, Catherine, you mentioned two changes in the asset and wealth management industry, a change in how Americans save for retirement, and a structural reduction in public equity and bond markets. You'd said the two changes mean that individuals need to invest institutions. What does it mean to invest like an institution?
Catherine Keating:
Well, it's what I said before. It's being broadly diversified and staying invested through market cycles. But more specifically to those points about the changes we've seen structurally in the equity market, public equity market in this country and in the bond market, credit markets. If you look at public companies in this country over the last 30 years or so, 30 years ago, there were 8,000 listed public companies in the United States. Today there are 4,000, right? So it's been cut in half. At the same time, there are now 16,000 plus companies that are owned by private equity funds. So private equity-owned companies, they represent a significant opportunity to invest because often when companies are private, you're getting their fast growth phase. So you want to get exposed to those growth opportunities when companies are private. But the other thing that's also become important is that not only are there more private equity backed companies than public companies, but they're staying private much longer.
So if I think about Google, okay, Google went public in 2004. It was six years old. Airbnb. Airbnb went public in 2020. It was 13 years old. So what that means is is companies stay private longer. By the time they do go public, and public investors can get access to them, they're already mid-cap or even larger companies, you're missing that fast growth stage. So investing like an institution is making sure that you have exposure to public markets, look at what a good job they're doing for us, but also exposure to private markets. And you do that the way an institution does. You don't do it by yourself. You work with experts just like institutions do. And the same thing with credit markets. So we're all familiar with the bond market. Obviously bonds are credit, but what you've seen in this country since the financial crisis is different rules about bank lending have actually led for a lot of lending to be done outside of the banking system. Really only about 30% of loans are made by banks today. The other 70% are made by non-banks, asset management firms, funds.
And so you want to have exposure to both of those things. You want to have exposure to equity for growth, public equity, but also private. You want to have exposure to credit bonds or private credit and funds for income. But again, it's complicated. So you don't want to do that by yourself. You want to do it with a team of experts that can help you.
Josh King:
In that same piece you wrote, I'm going to quote you here, "Today, the asset and wealth management industry is on the verge of a third seismic change, two thirds of total wealth that is currently owned by the silent generation and baby boomers is in transition to surviving partners and younger generations." So Catherine, as this wealth transitions, what's the impact going to be on the sector overall?
Catherine Keating:
This is profoundly important to the sector, but also to the economy. So yes, wealth is correlated with age two thirds of wealth in this country is owned by baby boomers and older. So the youngest baby boomers are turning 60. So two thirds of the wealth in the country is owned by people who are 60 or older. I talked about the fact that the U.S. retail market is $55 trillion of financial assets. But when you add in non-financial assets, homes and other things that people own, that's about $150 trillion. And then two thirds of that is going to be shifting in the coming decades, and it's going to be about 10 to 20 trillion every decade for the next 40 years. These are profoundly transformative numbers, and we're in the big numbers business. You're in the big numbers business. But what does 10 to 20 trillion mean? The U.S. economy, it's $27 trillion.
We're talking about 10 to 20 trillion transfers a year. The Chinese economy, 18 trillion, you think of the next largest economy, countries in the world, economies, three to four trillion, and that's countries like India, Germany, the U.K. These are profoundly important numbers, and they're important to us at our firm, because obviously we're a financial services, a financial infrastructure, a financial management firm, but they're also very important to the economy, right? Because again, individuals control the economy and individuals control most of investment assets. So we are highly focused on this and what's going to happen when these assets transfer? They are going to transfer to a generation that is younger. By definition, half of that is women, by the way. The first stop from the older generation to the next generation is often a woman. Not always, but often.
So half of the beneficiaries of this will be women. All of it will go to younger generation family members who need the benefit of our experience, but we also need the benefit of theirs, and we can help them. One thing about that younger generation is that they're very hands-on, and I don't have my phone here, but if I did, hands-on, you can bank on your phone. You can invest on your phone. Long-term investing shouldn't be an impulse. It should be very intentional, very deliberate, step-by-step like an institution.
Josh King:
What have you observed about that generation's particular psychology? As this money changes hands to that generation, half women, maybe women first, how are their investment habits a little different or changing? Are they more inclined to dip into practices about sustainable investing? Consider ESG as a bigger factor in their decisions?
Catherine Keating:
Let me start with the women question since women are going to have half of the wealth in this country, what do we know about women and the economy? Well, one thing we know about women is that women have always been huge contributors to the economy. Women are innovators. Women are responsible for developing the ironing board, the dishwasher, home security systems. They're responsible for very interesting things in the medical field, the Apgar scores that we do for newborns, the Myers-Briggs personality indicator tests developed by women. We know of their work in the sciences and satellites and lasers. So they've always been very innovative. Great problem solvers.
The second thing we know about women is that they make roughly 90% of the purchasing decisions in any household. So again, high influence on the economy. The third thing we know about women is that they tend to be very good investors. Why? Because they're goal-oriented. They know what their goal is. If you know what your goal is, you just take steps methodically year after year after year to get there. So they tend to be very good investors. They're competent as investors, highly competent. They're not always highly confident. They're not always highly confident. And I think of-
Josh King:
How do you instill that confidence?
Catherine Keating:
I think it's a great question. I think of my own life, right? My dad died, left my mom a widow at age 32. I watched her have to apply for her own credit card in her own name. I watched her have to buy her first car for the family, a Volvo station wagon, by the way. I watched her go back to school and get a graduate degree and go to work. I watched her figure out how to invest the small bit of life insurance she inherited from my dad and join investment clubs, which she's still a member of to this day. She did get remarried, and so that was all wonderful as well. But I think of Eliza Hamilton, I think of my own mom, and don't wait until you have to do it. That's what we tell clients. You need to start focusing on your financial future as soon as you can, because the power of compounding is so very, very powerful.
And I think we really sort of focus on kind of three things, right? As we help this transition of wealth into women's hands and the next generation hands. First is people. We're a people business. We want to be a business that reflects the people we work with. So having a divorce, excuse me, we want to be a business that reflects the people we work with today and in the future. So having a diverse workforce, diverse by age, gender, ethnicity, experience, critically important, we're absolutely dedicated to that. And by the way, very proud of what we've built as a diverse business. Almost half of our employees in my business are women, which is very exciting.
The second thing that we focus on is tools. Because again, if our job is to take the emotion out, it's great to have tools that you can use. So we've built a tool, we call it Advice Path, and it basically takes those five institutional practices I talked about, investment, balance sheets, spending, taxes, protecting what you have, and it puts them into a model. And you can sit there with a client and make assumptions with them. So they tell you what their goal is. I want to have this much money to leave to my kids. And the model allows you to make different choices along the way on each of those things. And I've sat in meetings with a husband and a wife, where the model says, your chance of reaching your goal is about 50%. And most people want their chance of reaching their goal to be higher than that. And so then you start discussing, okay, well how do we get there? And you could take more risk in the investment portfolio. You could take on a little more leverage, you could spend less money, and you work through what they're comfortable with.
And what's really great about that is that that plan becomes their plan. It's not our plan. We're not the Wizard of Oz coming out with, here's your plan. It's their plan. They commit to it, and that enables them to typically stay with it. Because they know what the goal is. So we use tools. And then the last thing we use is we just use experience and empathy. We use experience and empathy, and we know that every single milestone in your life is a financial milestone, when you get that first allowance, when you're going off to college and getting your first credit card or checking account, whatever it is, when you get your first job, if you get married, if you have a child, unfortunately you have the sad events in your life, right? Death or divorce. So the empathy of knowing that these are human events, but they're also decision-making events as well, and trying to be human in helping people make those decisions.
Josh King:
As we begin to wrap up, talking about the business that you're in as a people business, not only you and your colleagues, but your clients and the work that goes into developing a plan for them that they now have sealed and ready to use and deploy in the months and years ahead. You can't assure that everyone at BNY is going to operate and become more efficient with Generative AI. These are human beings that need to come to work every day with the best attitude, the most intellectual nourishment. To the extent that you model some of that teaching onto yourself, how do you look at a bit of the summer as an opportunity to nourish, refresh, come back, energized at the end of the summer for the next season?
Catherine Keating:
So we're very energized in the summer, as I bet you are too, because we have our summer interns with us, and at the end of the summer.
Josh King:
That's right. You talk about a thousand of them coming in, right?
Catherine Keating:
Exactly. So they're here already. And then we have our permanent analyst class joining us in August. So the summer is a great, great time for us. I guess I would say culture is the most important thing, right? Having a culture that is client-obsessed, where you start your days, end your days. That's one of our principles, by the way, client obsession. You start your day and end your day thinking about clients is critically important, and we really try to foster that culture in the way we run our days. I also think though, because wealth management is a long-term game, right? You are investing for someone's lifetime and potentially beyond. I do think the experience that we all gain over our careers, I talked about the careers first, third, second, third, third, third. I'm in the third third.
And I think that the experience that I've gained over the years, if I really think about it, and many of my colleagues have too, lived through the growth of the technology bubble in the late 1990s, and then the busting of that bubble, living through a terrible geopolitical event on 9/11, the global financial crisis, where hundreds of banks failed. And I had a real learning moment about that in March of 2023, because hundreds of banks failed in 2008 and 09 and 10 coming out of the financial crisis. But we've had very little of that ever since.
And so when Silicon Valley Bank failed in March of 2023, I thought about our workforce and I realized my average employee has been with us 15 years. Well, it had been 15 years since there was a bank failure. So it was a real learning moment and teaching moment for our employees about bank balance sheets and what could make a bank fail, and what's the process when it fails, and what does it mean for the clients and the investors? And how do we at BNY survive and thrive for 240 years, not having that happen to us? And then you think about COVID, the lessons that we learned during COVID, the folks that are joining us today weren't in the industry yet. They were in college or maybe even high school when that happened.
And that's the thing, you might think you're in the third, third, you're here to impart all your experiences, but you're always in the first third. You're getting new ones. I'd never experienced a global pandemic, and we learned again, how markets can be resilient. We saw it, how companies can be resilient. We were resilient through that, but we also learned that moments like that, when you have a global pandemic, everyone's health is in danger. You focus on first principles. And for us, we were very clear. Our first principle was the health and safety of our employees. We knew if they were healthy and safe, our company would be healthy and safe. Financial markets would be healthy and safe. And so it really is. It all comes back to culture. It comes back to culture and principles.
Josh King:
So you think about these analysts coming in in August for the first third of their, what hopefully will be a long career at BNY. We talked earlier about the history of BNY from its title as the first publicly traded institution at the New York Stock Exchange to its upcoming 240th birthday. As it reflect on the 239 years and look ahead to the future, how do you envision for those analysts beginning that first third, the next chapter of BNY Wealth and BNY as a whole?
Catherine Keating:
I think first of all, for these analysts, our goal is to give them broad exposure to the company and to financial markets, from the day they arrive. So we have lots of training, company-wide training, division-wide training, rotational plans for all of them to give them broad, broad experience in the financial markets to really power their careers forward. When I think about the next chapter of BNY, I think at the inflection point that we are in here in 2024, right? I think about, it's not only the 240th anniversary of the founding of Bank of New York this week, we're also marking the 80th anniversary of D-Day.
Josh King:
We sure are.
Catherine Keating:
And so when I really think about financial markets starting in World War II, but really picking up after the fall of the Soviet Union, right? In the early 1990s, what have we invested through and managed through? We've invested through an environment that is largely peaceful. We've invested through a global economy that has been globalizing in all sorts of ways, supply chains and trading patterns. We've seen tremendous global growth. All of that led to a lot of prosperity and growth. And here are we today, and what do we see going forward? We see a world that sadly is probably a little less peaceful. That's definitely what we see right now. We see a world that remains great potential to grow, but left to its own devices it probably grows a little less. AI can help. AI can help. We're counting on it. We know it's going to help with that productivity growth. Inflation, probably higher than what we had through the years after the financial crisis. That was the lowest we've ever seen.
Inflation will be a little higher. Interest rates will be a little higher, not what they are now, but not the way they were then. We never thought inflation was transitory. We always thought it was transitional. And so we're guiding our clients to invest through a slightly different investment environment. And it's not going to be a bad one. It's just going to be slightly different. We would call it, in fact, on our morning call yesterday, we called it partly sunny with a couple clouds, with a couple clouds. The clouds would be those big issues that we're watching. Geopolitics and deficit and debt because that's very, very important. And there will be bursts of bad weather, just bursts of bad weather, right? That's the investing environment we're going to be in, but you can do just fine in that environment. If we think back to the 1990s again, and if you got started investing back then, you probably made nine, 10% on your equity returns. You probably made four or 5% on your fixed income. You did just fine as long as you stayed invested through that cycle.
Josh King:
Partly sunny with a couple clouds, with some bursts of bad weather. Catherine Keating, I'll take that as investment advice for next year and the decade that follows. Thanks so much for joining us Inside the ICE House.
Catherine Keating:
Thank you, Josh. Thanks for having me.
Josh King:
And that's our conversation for this week. Our guest was Catherine Keating, Global Head of Wealth for BNY. That's NYC ticker symbol BK. If you like what you heard, please rate us on Apple Podcasts so other folks know where to find us. If you've got a comment or a question you'd like one of our experts to tackle on a future show or to hear from a guest like Catherine Keating, please make sure to leave us a review. Email us with your ideas at [email protected], or Tweet at us @icehousepodcast. Our show is produced by Lance Glynn with production assistance, editing and engineering from Ken Abel. Pete Ash is the Director of Programming and Production at ICE. And I'm Josh King, your host, signing off from the library of the New York Stock Exchange, thanks for listening. Have a good week.
Speaker 1:
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