Hard Lessons: Morgan Stanley’s Lauren Hochfelder

Jon Gray

I remember going to see investors and distinctly one of our state pension funds in the meeting, telling them about one of the writedowns. And I just remember that awful feeling leaving that meeting, going back to the airport and being like, wow, I cannot let this person down. This is not good.

Narrator

From Morgan Stanley. This is hard lessons where iconic investors reveal the critical moments that have shaped who they are today. You'll hear about two out of consensus calls, one that was on the money and one that wasn't.

Narrator

Today on the show. Jon Gray, president and chief operating officer of Blackstone with Dan Simkowitz, co-president of Morgan Stanley. Jon stepped into his current role in 2018, and since then, Blackstone's assets under management have more than doubled to over $1.2 trillion.

Dan Simkowitz

Well, it's so, so good to have you here. It's fantastic. You know, I'd say 30 years ago our industry was so private, frankly so small. So, I think it's a little inspiring what you're doing around marketing for financial services. But you know, when we led the Blackstone IPO you were $88 Billion of AUM. Now you're over $1 Trillion. The organization is bigger and more complex.

You've built both a world class client service organization, but at the core of it is just incredible investment, discipline and performance. And so John, we're going to talk about two out of consensus investment decisions. Set the scene for one of the winners.

Jon Gray

Always better to talk about the winners, although you learn more from the losers. Right around 2007 we bought Hilton Hotels. I led that investment. It was a $26 billion investment, and I was, um, excited because this was a obviously iconic company that owned some incredible real estate like the Waldorf, had a timeshare business and then had this unbelievable management franchise business Hilton and Hampton Inn and DoubleTree, Conrad, Hilton Gardens, all of that.

And it was at a time when the market was pretty frothy because it was before the financial crisis. You remember people were borrowing a lot to buy homes. They were borrowing a lot in leveraged lending in the corporate world. They were borrowing a lot in commercial real estate. Prices were elevated, and I thought we had found something in operating business with some real estate inside that we could buy at a reasonable price.

Now, we paid a big premium 40% over the stock market at the time, and we bought the business $26 billion. We borrowed $20 billion. It was a different era.

Dan Simkowitz

How did that feel?

 Jon Gray

Well, at the time, there was so much leverage in the system.

Dan Simkowitz

It was– you’d never borrow $20 billion before?

Jon Gray

No. Well, except that we had bought EOP. We had bought the largest office business, and that was a $39 billion deal, and we had been on this run buying public companies, because at the time I was running real estate and we were able to buy the businesses on the screen much more cheaply than we could be when we were bidding for individual properties.

And so we started scaling way up. But in this case, we took on a business with some volatility hotels and put a lot of leverage on it. And we took money from our private equity business and our real estate private equity business, $5.6 billion of equity, the largest investment we'd ever made at the time as a firm.

And we bet on this. And we closed the deal in the fall of ‘07. Terrible timing. And by all accounts, I should not be sitting here with you, Dan. They should have carried me out. And it looked that way. Because if you recall, the financial markets really tighten up and the real economy goes down. And this business, Hilton loses 20% of its revenue and 40% of its cash flow.

And we've leveraged it up a bunch. We write down the investment by 71%.

Dan Simkowitz

So you actually took the action to write it down.

 Jon Gray

We took the action to write it down because it was clearly very impaired. And I remember going to see investors, and I remember distinctly one of our state pension funds in the meeting, telling them about one of the write downs. And the investor was almost physically ill, which is understandable, because he had a very large investment with us.

And I just remember that awful feeling leaving that meeting, going back to the airport and being like, wow, I cannot let this person down. This is not good. And I think fortunately, maybe because of my core optimism, but also my belief in the underlying business, I didn't lose faith. We also had an amazing management team led by Chris Nassetta, who's still the CEO of Hilton.

I'm still the chairman. 18 years later, it's pretty amazing.

Dan Simkowitz

That's a rarity.

Jon Gray

A rarity, yes.

Jon Gray

We got through this now. How did we do it? We ended up putting in an extra $800 million to help deleverage the company and get some additional term on the debt. The management team did an amazing job. They kept growing the business, particularly outside the United States. And then ultimately the world started coming back.

People started traveling again. The business was performing. We went public. A few years later, you guys were involved in that as well. We ended up, you know, splitting into three companies a timeshare business and owned real estate business and a management franchise business. We sold some individual assets, and then we sold our stock, and we ended up making $14 billion, the most profitable real estate private equity deal of all time.

And the movie should not have been written. It should have looked completely different. And so it makes you think a lot. What are my takeaways as an investor? And and I would say the biggest ones are one. You got to stay calm.

Dan Simkowitz

Stay positive. You never give up.

Jon Gray

That's what I say every Monday on on our TV. It's what I say to my daughters. But the most important thing on Hilton was that what I learned as an investor was maybe I spend too much time thinking about whether I should pay $99 or $101 and so forth, and maybe what matters more is sort of the neighborhood I'm investing in.

The underlying tailwinds, in this case, global travel, the quality of the business, in that case, a capital lite, fast growing franchise management business, as well as the quality of the management team. And if you can get those things right, even if you made a really poorly timed investment and paid a big premium, it can still turn out okay.

And so when I think about today is we're investing into digital and energy infrastructure, or in India or in life sciences or areas where we have really high conviction. That to me comes from this experience, which was why did this turn out? Well, it should not have turned out well. And so, the lesson of let's try to find the right neighborhoods to deploy capital that has really stuck with me.

Dan Simkowitz

It's interesting because we're such great partners, our two firms, partly because in the last 15 years we got intensely dedicated on just helping clients allocate capital, but we needed to be bigger and a little different. So we bought Smith Barney, bought E-Trade, bought Eaton Vance, you know, all these these acquisitions, but they're all around a neighborhood we loved.

 Dan Simkowitz

Having a partner. So in your case, you had Chris, but presuming you also had your own team, you know, how important is that? Especially when it's really dark. How important was that.

Jon Gray

On a deal like Hilton? Super important. I would say having business colleagues who still believe in you. First of all, you guys have done an amazing job because also you've got a great culture and you have all these capabilities, both serving individual investors and obviously as an investment in commercial bank providing capital and and that ability to show up as a partner, even in the bad times, having people who still say, yeah, we've got to find the way out through this thicket, that's really important.

And I would add a personal element to this. Having a wife and children and people you can go home to who still believe in you, even when the world doesn't, that matters.

And I'll just give you a sense of how dark it felt. Um, in early oh nine, the company had an employee who had taken some documents from a competitor the company had found out sent him back. Nevertheless, there was a federal investigation. There was a big article in the Wall Street Journal, and I was talking with Chris Nassetta, and I called him and it was March

Yeah, it was probably March of ‘09. We'd written the investment way down. We had this investigation in the headlines, and I said, Chris, the good news is it cannot possibly get any worse. But the fact that I had him, I had my family, I had colleagues, and ultimately that this was a terrific business, that what we faced was cyclical, not secular in nature. That made a huge difference.

Dan Simkowitz

So now it's one of the greatest private equity deals of all time. But in the darkest days, it was hard. What's the one big, hard lesson coming out of Hilton?

 Jon Gray

Well, I think the hard lesson was…

You don't want to put that much leverage, even on a great business, because the key is you've got to be able to get to the other side. When you own a great business, great piece of real estate or infrastructure, ultimately it will It'll compound or grow. And the problem is people get stopped out. In the trading world, it's margin debt.

It could be leveraged lending in corporate world or real estate debt. And if you have too much put so much pressure, you may be forced to sell dilute your ownership at exactly the wrong moment. So the good lesson was focus on great businesses, great neighborhoods and stay calm. But the hard lesson is don't put yourself in such a precarious position that if the weather outside gets tough, you're at risk of losing things.

 Dan Simkowitz

So this one worked out perfectly in the end. Yes, EOP worked out great. These are oh seven vintage deals right before the crash. Give us one that didn't work out so well.

 Jon Gray

One of the toughest lessons for me happened in the late 90s during the dot com boom. I joined Blackstone in ‘92. I did M&A in private equity for a year, a year and a half, and then I went into real estate after a crash and basically for, I don't know, 6 or 7 years. I'm in real estate. Things just keep going up and up because you were you had bought things very cheaply.

Interest rates were reasonable. There wasn't too much building. And when you buy everything and it goes up, it doesn't really train you to be a great investor, right? It's the experience. It's these hard lessons that make all the difference. And sort of the top of that was in the late ‘90s. I was really focused on Northern California because you were seeing the innovation.

We were moving on to the internet and so forth. And what happened was I bought a building on North First Street in San Jose, a nondescript two story, and these were really crummy assets. They were crossed between office buildings and warehouses. They weren't worth very much physically, and we paid a big price for them because they had a tenant paying a huge rent, and instead of buying it at a 7 or 8% yield, I was buying it at 11 or 12%.

I thought this was amazing. What I failed to notice was the major tenant was Gobosh.com

 Dan Simkowitz

What’s Gobosh.com?

 Jon Gray

Gobosh means go big or stay home.

Dan Simkowitz

Oh God.

Jon Gray

I'm sure that you know, this company of unfortunately didn't last very long. I should have stayed home because by March of 2000, you know, the dotcom bubble blows and this tenant disappears. And I should have recognized we were paying well over physical replacement costs. The quality here was poor, and the tenant didn't have much in the way of revenue.

It had very few people in the space, and in my enthusiasm of what had come before it, I sort of lost sight of that. Now we ended up getting a letter of credit. I think we got about a third of our money back, but it was really the first time I experienced financial loss in an investment. And I don't know, we lost $20 or $25 million, but it was embarrassing to tell your investors, to tell your colleagues and to look at it after the fact.

It was like, oh my gosh, how stupid could I be? Why would I pay that price for this? And there. It's a little bit of the danger of the mania of crowds, right where things were going so great that in that moment in time, we became disconnected from fundamental value.

Dan Simkowitz

And did someone come to you in that instance because you're not as senior as you were in oh seven and say, you know, John, these are the lessons that have to happen and hang in there, or did you have to learn that yourself?

Jon Gray

I think that we all sort of talked about it. It was pretty clear after the.com bubble burst, it was pretty clear to look back and say, gosh, when companies are trading at hundreds of times revenue, they're not making any money. The business model isn't viable. This was way too speculative. And what's interesting is I know today there's a lot of are we in the same kind of environment?

The only thing I would say is it feels very different to me. I mean, back then, as you know, Cisco, I think was the biggest company they traded at 130 times earnings. Nvidia, the biggest company today I think is less than 30 times earnings. And so I don't think we're that kind of time. Now, if this runs for five more years and people think trees grow to the skies, that's always a risk.

But I think as an investor, again, when you go through those experiences, it reminds you to question yourself that the danger is sort of the winning hand thing, that you keep doubling down, you keep doubling down because it's working. But at some point the prices move too far, the assumptions move too far, and just because something's worked for a long period of time doesn't mean that's going to continue.

Dan Simkowitz

Blackstone probably has great people joining all the time, but if they've joined since 2010, yeah, away from the Covid period, which is, you know, pretty V-shaped, they may not have experienced the same challenge that you did. How important is it to go through one of these drawdowns or real hard lessons?

Jon Gray

I think you learn so much more because when you have success, what it teaches you your genius, right? Like you buy something, it goes up, it doubles in value. Look how smart. You don't even think about it. It's when something goes wrong that you sit down and say, why did that happen? Like, what did I lose sight of in fundamental value?

What did I miss about this business? Shouldn't I have known that? And you tend to really dwell on it and it makes you better. And then you begin to have pattern recognition. You begin. Then as you get more senior to say, oh, I've seen this before. And so the danger, of course, is when people get burned. Sometimes they have a hard time going back.

Right. And so they bought an asset at 100. It now trades at 40. And they're like oh no no I'm still scared. But you're like wait, wait. The risk is much lower. And as you know, the psychology is people are more enthusiastic investing as the prices go up as people perceive risk is lower. And one of the good things I think about the current environment is there's so much negativity.

Everybody there's a bubble and private credit. There's a bubble in AI, there's a bubble in the stock market. In some ways, that sort of caution that lingers over everything is helpful to stop things from getting out of hand.

 Dan Simkowitz

John, these are incredible investment perspectives. But if you think about your career, your adult life, what's the hardest situation or lesson that you've faced?

Jon Gray

Well, I would say certainly in my career was what happened this summer. We lost an amazing colleague in Wesley LePatner. We had a horrific shooting at our building. Um, random act of violence. And, um, you know, to lose somebody who was an amazing professional, but an even better human being, mother, wife, daughter, great mentor to so many of our people.

And then, you know, to have your people go through the trauma of one of these mass shootings, that was really hard because there's not really a playbook. It's not like an investment thing. Oh, here's what we're going to do. And the only thing you could do is sort of express your humanity. Try to give people support, mental health support.

Do all sorts of things bringing people together and then honor Wesley's legacy, which I think is really important. So for me, that was that was the toughest moment, I would say, certainly in my career, because it went well beyond financial into the human. And, um, hopefully you never endure anything like that again.

Dan Simkowitz

It's very tough.

Jon Gray

But the really important thing, again, is to connect with people. And the the thing about our firm, I felt has always been special. It's always run like a small business. And we can emphasize over and over again the importance of delivering for our clients the performance that we operate with integrity.

But if you think about an investment organization or financial services company at its core as a culture of the place, and that's what we're desperately trying to hold on to.

Dan Simkowitz

Jon, that was incredible. Amazing lessons. Thank you for the partnership. We really appreciate it. It was fun.

 Jon Gray

Dan, it was great. Thank you, thank you. Morgan Stanley great partnership as well. Thank you.

Narrator

You've been watching Hard Lessons, an original series from Morgan Stanley. You can listen to an extended audio version of this episode on Apple, Spotify, or wherever you get your podcasts. For more information about the series, visit Morgan Stanley dot com slash Hard Lessons.

It was a big, big negative event. 
 
Jean Hynes 
 
There was so much value created. When a drug works and when it doesn't work, there's a lot of value destroyed. Sure. 
 
Narrator 
 
For Morgan Stanley, this is hard lessons where iconic investors reveal the critical moments that have shaped who they are today. You'll hear about two out of consensus calls, one that was on the money and one that wasn't. 
 
Narrator 
 
Today on the show, Jean Hynes, CEO of Wellington Management with Amy Ellis, global head of senior relationship management at Morgan Stanley. Jean became CEO in 2021 after spending her whole career at Wellington, where she was a portfolio manager, an industry analyst in healthcare and biotech. Her deep and thoughtful approach to research continues to inform her strategy today. 
 
Amy Ellis 
 
Jean, thank you so much. 
 
Jean Hynes 
 
I'm so happy to be here, Amy. 
 
Amy Ellis 
 
You've seen so much. You've accomplished so much. We've all had moments in our career. We've had to make decisions, and we didn't know how they were going to turn out. Here on Hard Lessons, we're here to explore those with you. Can you set the stage now for us on a bet that you made and how it worked out for you? 
 

Jean Hynes 
 
There was a company called Schering-Plough, a pharmaceutical company. It's probably most well known for the drug Claritin. Sure. Which is a staple in everyone's life. It's now over-the-counter. Claritin was coming off patent in 2002, and they also had this new what I thought was an exciting cholesterol agent that was in development. 
 
Okay, so I had this company that I had not owned, I knew Claritin was coming off patent and that the new drug was also going to be launched. And so that's where it gets a little tricky because you have you have very high margin drug going off patent, and then you have a new drug that you have to launch and invest in, and then you have uncertainty about the trajectory. 
 

Amy Ellis 
 
What gave you this confidence? What gave you this fortitude? That this was the inflection point. This was the time to get involved. 
 
Jean Hynes 
 
People probably know statins. There are millions and millions of people on statins. And statins are an amazing medicine. But at the same time, there were lots of data that showed getting cholesterol even lower than these medicines could do. It was very important. And then Schering-Plough had a drug that was a brand new mechanism. 
 
So the bet was that it would be complementary to the statins. It wasn't going to replace the statins. 
 
Amy Ellis 
 
Okay. So how out of consensus were you? 
 
Jean Hynes 
 
So I think I was out of consensus at many points at the time. Okay. But I think the big call was that it was going to be a successful drug in its profits. It would replace the profits of Claritin. Wow. I think over that decade that actually turned out to be true. 
 
Amy Ellis 
 
And you got it right. 
 
Jean Hynes 
 
And I got it right over the long term. Like Schering-Plough probably was one of the best pharmaceutical investments in that decade. But it was. There was a lot of ups and downs in between. 
 
Amy Ellis 
 
Were there moments you thought you misstepped? You thought you got it wrong? 
 
Jean Hynes 
 
This is the science and art of investing. In 2002, a Claritin patent went off. And what happened in the years prior is that you began to have consolidation in the retail drugstore chains, moving from this independent pharmacies to CVS and Walgreens. Like much more consolidated retail chain, you also had the emergence of pharmacy benefit managers. 
 
And so by the time Claritin went off patent and the retail drugstores and the PBMs were all incentivized to switch as fast as possible, you went from a scenario where drugs lost their patent and lost their sales over five years, to losing their sales over one year. I think it surprised me. It surprised the pharmaceutical companies. 
 
It surprised everyone in the market. 
 

Amy Ellis 
 
Ton of new learning. 
 
Jean Hynes 
 
A ton of new learnings during that time. And so what that meant was it wasn't going to be a perfect line of clarity going off and going up. And and then the question was, how does a company that's losing a 99% gross margin drug, um, still invest in this new launch? And that's where my earnings estimates were too, too high because we were all learning at the time. 
 
The company was trying to not lower its earnings estimates. And so they were they were doing things that probably didn't benefit the launch of the idea because they were trying to, um, smooth it and reduce profits. They were also launching Claritin over the counter. I'll tell you a funny story is my husband comes home and he brings home, um, private label Claritin. 
 
And I was like, you can't do that. You need to buy the branded. But it was a sign that actually branded Claritin was priced too high. Yeah, because they were trying to price it to save their profits. 
 
Amy Ellis 
 
During that journey. What other things did you realize about long term holdings of big companies? 
 
Jean Hynes 
 
So I think what held me in the stock was the fact that they did change management. So we had a new CEO come in. His name is Fred Hassan. I had a lot of admiration for him, but my biggest lesson was that in 2003, when he came in, I should have known that he would have wanted to invest. And in order to invest. What he did is cut the dividend. 
 
Yeah. And he and he lowered the earnings so that he could invest. Now I am on maternity leave. By the way, when this happened with my fourth child, who is at that point, I'm like 5 or 6 weeks old, and you do not want to have a stock that has a dividend cut. 
 
Amy Ellis 
 
While on maternity leave. 
 
 Jean Hynes 
 
And it's one of the biggest holdings of the firm. Yes. And so it was the right thing to do from a management perspective. Like he created more value by making those very hard decisions. So for me, the heart, like the lesson learned, is I should have known this. Like I should have known that he was going to do something dramatic to create the long term value. 
 
Amy Ellis 
 
So you said that always stayed with you, so you've never missed that sense. 
 
Jean Hynes 
 
I've never had another stock that had a dividend. 
 
Amy Ellis 
 
Love it. I love it. 
 
Amy Ellis 
 
So Jean, can you tell us how Schering-Plough journey ended? 
 
Jean Hynes 
 
Yeah. So in March 2009, Merck and Schering-Plough agreed to merge. It was a partly cash and partly stock transaction. It was a big transaction. So interestingly, Merck bought Schering-Plough and actually Pfizer bought Wyeth. I own both Schering-Plough and Wyeth. The interesting thing was that so I hold these stocks, I hold Schering-Plough and of course there was a pop like that was good. 
 
But then the price of Merck went down so much, and actually the price of Pfizer went down so much. I thought the acquisitions were actually quite good for Merck and for Pfizer. And so what I had to do is something I had never done before, is take a step back and say, if if people begin to realize that these are actually really opportune and good value acquisitions for these companies, those stocks are going to go up and I will never get the full value of the value creation of Schering-Plough. And so what I did within the month or two is recommend that we sell all of our Schering-Plough and buy Merck instead. And so in the end it was actually the stock part of it too. I had to get right because I could have done all the analysis right. But if I hadn't done that move, which I had never had to even think about before. 
 
Yeah. But because they were such large acquisitions and some of it was in stock, I had to figure out like what was the right thing to do to actually make sure I created all the value for our clients. 
 
Amy Ellis 
 
And looking back, I mean, you have to think that was such a good move. 
 
Jean Hynes 
 
This was a great acquisition for Merck. Yeah. Yeah. And what came out of that was not only that, that Zetia in the cholesterol franchise became a good franchise, but ensuring class pipeline ended up being Keytruda, which is now the largest drug in the world. It really changed Merck's future. I always like to say whenever something works, you actually can celebrate for just a short period of time. 

You go, yay for like literally a day, and then you have to actually decide what to do. 
 
Amy Ellis 
 
Okay, so let's let's shift here a little bit and talk about an out of consensus call that didn't go so well. Yeah. 
 
Jean Hynes 
 
So giving you a little bit of history. Elan was a drug delivery company based in Ireland. We did not own it, by the way. We had a very negative view of Elan during the 1990s. They had a very high earnings growth, but in my view it was very low quality earnings growth. Got it. But then in the late 1990s they bought a company called Athena Neurosciences. 
 
Now we were the largest shareholder of Athena Neurosciences. We knew that company. They were developing drugs for multiple sclerosis and for Alzheimer's. They were based in South San Francisco. It was a very odd acquisition that this sort of lowest quality drug delivery company would buy the South San Francisco. 
 
Very exciting. Hi. Science company. Okay. And so we had a very positive attitude towards Athena, but all the issues about earnings quality were still happening with Elan. Okay, I was right. Like the earnings quality was really really quite low. Yeah. But then at the same time the pipeline of Athena was beginning to merge. 
 
And so we began to buy a lot for really for the pipeline of Athena Neurosciences that at some point people would realize what they had and you'd have this massive uplift of quality and excitement about the future. There's two parts of Elan that were difficult. One was that last bit of low earnings quality came out after we bought it. 
 
Okay. And this is another lesson. So when you have a profit and loss statement, you have revenues and you have a cost of goods and you can't really hide those unless it's fraud. But you also have this other revenue line. Okay. And my lesson is that I didn't dig in deep enough to that. 
 
Amy Ellis 
 
Interesting. 

Jean Hynes 
 
Line. Interesting. So there ended up being things that were non-recurring. And so it wasn't real earnings. The lesson for me is you know and and I say this to all our young analysts like you need to understand every line of the PNL. Yes, every single line. And you can't just put a plug in. You have to really dig. 
 
So that was another thing. I'm never going to let that happen. Okay. 
 
Amy Ellis 
 
That's fair. 
 
Amy Ellis 
 
All right. So that was the first line. That was the first line. 
 
Jean Hynes 
 
And then and then the excitement happened. Yeah Amy the excitement happens. They bring this drug for multiple sclerosis to the market in the first generation of multiple sclerosis drugs. They took patients out of wheelchairs. Doctors would say in the early 2000, I don't have people in wheelchairs anymore. 
 
But at the same time, they were drugs that were difficult to take. From a tolerability perspective, the way the drugs work, they cause people once a week to feel like they had the flu. So they were amazing. Inventions and innovations and not optimal. So we were looking for what was going to be the second generation of multiple sclerosis drugs. 
 
And how was it? And and if you did the research, this mechanism really reduced the inflammation that was going into the brain. Patients felt great and the drug was approved. And then it was taking off like faster than almost any drug. It was like, wow, this is going to be such an. 

Amy Ellis 
 
We got it. 
 
Jean Hynes 
 
Right. And I was underestimating the launch. Wow. That's how that's how positive it was. So this is February then of 2004, and I am in Japan, and I remember being out to dinner with a Japanese company coming back to my hotel room and the red light blinking. So I listened to the message on the hotel phone. 
 
And it's my trader back in Boston saying, Tysabri has been pulled from the market, and I'm sitting there in my hotel room saying, what? Like, how could it possibly be pulled from the market? I mean, the reason Tysabri was pulled from the market, it was so good at reducing inflammation to the brain, it was almost too good. 
 
There was a very low incidence that a lot of very, very rare virus to start in very few patients. But the outcome was death. And so like you can't accept unacceptable. And so I'm like across the world in a hotel room up half the night, I had to leave a message for the portfolio managers on voicemail like I wasn't at a computer. 
 
You didn't have blackberries, you didn't have iPhones. So I'll tell you the next day the stock is down 90%. I come out to the car and my and my great colleague said to me, he's like, Jean, There's nothing you can do today. And we're here in Japan to do a job for our clients. And we need to focus on the job at hand. 
 
And there was nothing you could do. The stock was down 90%. So it wasn't as if, like, you were going to save a lot of money by selling it. Like you can get to it next week. So I want to tell you how difficult this was. I have a wonderful colleague who loves facts. And he said, Jean, do you know that this is the first company with a market cap over 10 billion to go down 90%? 
 
Jean Hynes 
 
It was a big, big negative event. 
 
Jean Hynes 
 
I ended up doing a lot of work in the ensuing months. I didn't sell my position. I just kept it and I did work. Alon ultimately got acquired by another company. It wasn't a great holding. Yeah, yeah, it did recover from that 90% because we ended up coming back on the market. And it really did teach a lot about science. 

It really told you you can do better for multiple sclerosis patients. But now, 20 years later, there are really good drugs for multiple sclerosis that balance that safety and and efficacy and tolerability. 

Amy Ellis 
 
Interesting. 
 
Jean Hynes 
 
These are high risk. That's the beauty of biotech and pharmaceuticals. It's not good enough to just understand the science and what's going to happen. You have to understand the financial implications when you're really researching science and you're on the cutting edge of science, it doesn't always go how you want. 
 
And so there is so much value created when a drug works and when it doesn't work, there's a lot of value destroyed. 
 
Amy Ellis 
 
Sure. 

Amy Ellis 
 
So what did you learn when Elan opened up down 90%? 
 
Jean Hynes 
 
I think the lesson for me is you need to make sure that you are you're taking in all the potential risks in an area of medicine where it's cutting edge. And you can't always know everything. And then how do you react? 
 
Amy Ellis 
 
And at that moment, you decided to hold that moment. 
 
Jean Hynes 
 
I decided to hold and do research and wait and see, like, would the drug come back on the market? I could have just stopped and said, I'm not going to do this. There's probably an opportunity cost for that research to an opportunity cost for holding, or it could have been in another stock. But the decision I made was to hold and and we did recapture some of the value. 
 
But those are the decisions you have to make every day. 
 
Amy Ellis 
 
You went back to your trusted process. 
 
Jean Hynes 
 
When you do this deep research, and then you have an insight about how the future of medicine is going to change in a way, and then it could still be another five years till it gets to the market. It's it's when do I have enough dots connected? If I waited for everything to come out in phase three trials, we would've never made any money for our clients. 
 
Amy Ellis 
 
We sat together four years ago as you were ascending into the CEO space. What have you learned? What are the hard lessons of being a leader? 
 
Jean Hynes 
 
I became a managing partner in 2014, and in my first year I started working with a coach, and one of the things she asked me early in our coaching was like, do you want to be CEO someday? And I like, literally said no. Like it hadn't even crossed my mind, actually. And the reason for that, I think, was there aren't that many role models, right? 
 
There aren't that many role models. I had this image of CEOs and that was not me. Visionary, super creative. Aggressive. Um, that's not who I was. But when I took a step back, actually, the CEOs that created the most value in that I admired the most also didn't have those characteristics. 
 
Amy Ellis 
 
Interesting. 
 
Jean Hynes 
 
They were really this combination of optimists, strategists, um, humble, authentic. Those were sort of the characteristics of the of the CEOs that I admired the most. 
 
Amy Ellis 
 
So how long did it take you to think about, hey, I could do this. 
 
 Jean Hynes 
 
It took about a year before the inkling came in. Okay. It was a big decision to make. Two. Yes. Um, was I the right person? And if I was the right person, what did I want to do? Like, how did I want to spend the last decade of my wonderful career at Wellington. Is this how I wanted to spend my time? 
 
Amy Ellis 
 
Five years in. What are you most proud of and and what itches at you still? 
 
Jean Hynes 
 
The asset management industry is going through a lot of change. So one of the things that I can recognize is that I've seen the biotech and pharmaceutical industry be stable and be unstable, and I feel like the asset management industry is going through one of those changes. Sure. I think what I'm most proud of is shifting. 
 
Of course, we're going to have to pivot, but changing the mindset of 3000 people that, um, you know, we can pivot. Yes. For sure. You know, we have to pivot and we can and change most. You know, change is scary and exhilarating. Yeah. We're all in it together, and we can shift and create the next hundred years. 
 
We're about to have our 100th year anniversary. And so there aren't many companies that have 100 years. So really, it's what I'm most proud of are my laying foundations that will help the next decade, and the next decade after that. When I think about great CEOs that I've interacted with over time, I feel like they've done that. 
 
Like, it's not about what they did in any one year. It's not about the stock price during their period, even though I think that's how CEOs get recognized. It's about what do they do to create the value for the next ten years or the next ten years after that? 
 
Amy Ellis 
 
Jane, this has been wonderful. Thank you so much. Look forward to having a discussion in another five years. 
 
Jean Hynes 
 
Thank you for having me. You can you can probably tell Amy that I'm very passionate about biotech and pharmaceutical investing. And it was really fun to kind of go back and reflect on those journeys. So thank you for having me. 
 
Amy Ellis 
 
Fantastic. 
 
Narrator 
 
You've been watching Hard Lessons, an original series from Morgan Stanley. You can listen to an extended audio version of this episode on Apple, Spotify, or wherever you get your podcasts. For more information about the series, visit Morgan Stanley.