To our clients and business partners:

We work in an industry where, unfortunately, the success or failure of a given year is often mistakenly defined by the short-term performance of the markets. By that measure, I should feel thankful that during my 30 years in the industry, last year is only the sixth time that the S&P 500 Index has finished in negative territory. So, before the pundits declare this past year a failure, let me provide an alternative perspective. Over those 30 years, I have come to realize and passionately believe that short-term downturns and market volatility provide opportunities to enact change, enhance focus, and build a strong foundation for long-term success. Great leaders and investors, the ones I most respect, understand the importance of taking a long-term perspective and recognizing that the success of any one year is best measured by the work and accomplishments that position one’s clients and organization for the future.

As a firm founded in 1929, Lord Abbett has successfully navigated bull markets, bear markets, depressions, recessions, wars, terrorist attacks, and a global pandemic; and, like many of you, I’ve experienced some of these events first-hand. In the dark days of COVID-19, I wrote to you, sharing my thoughts that this was a crisis which—like all crises—would last longer, hurt more, and expose more weakness than we could imagine. A crisis is defined by unforgettable moments like the terrorist attack on 9/11, the unwinding of the capital markets in 2008, or the lockdown and fear of COVID-19. When asked recently if the current environment is a crisis, I answered emphatically: “No.” This is a bear market. Period. And we should remember that a bear market is when our clients need us most. While not defining this bear market as a crisis, we should not let the historic aspects of the current setting be lost on anyone. As one well-known investor once said, “you make most of your money in a bear market, you just don’t realize it at the time.”

Looking back, we should not have been surprised that inflation shot up 9.1%—the fastest price acceleration since 1981—following two massive stimulus programs in March of 2020 and 2021, and the Ukraine war-related supply shock to food and commodity prices that began in February 2022. Nor should we have been surprised to see the fastest rise in labor costs in 40 years when unemployment rates consistently stayed below 4% and workers were seeking higher wages and more workplace flexibility. Yet, we were surprised that the Fed was telling us these were just transitory trends. With that said, the Federal Reserve went on to engineer a historically rapid increase in interest rates—4.25% since March—triggering the most challenging year ever for fixed income investors. Although, in our opinion, it was a late response, this aggressive shift has demonstrated the Fed’s determination to ensure that higher inflation does not become embedded in the economy. Looking ahead, we see the conversation this year shifting from inflation to recession as the economy moves to a position that allows it to grow rapidly. Despite the pain experienced by investors, we are seeing plenty of opportunities in the markets and other signs that will lead to a market recovery at some point in 2023.

All these factors only deepen our firm’s passionate belief in active management, especially after the last 15 years of beta-factory dominance. We welcome a world where interest rates are higher, Fed support of the market continues to wind down, and market volatility increases. As an active manager committed to generating alpha, we look forward to competing in a more “normal” market environment in which our active approach will continue to deliver for our clients.

So, what have we been doing to position the firm for the future?

First, we are investing in our talent. We are in a people business, so I am always surprised to hear the word “layoffs” when markets get tough. As a privately owned firm, I can assure you that is not a step we will take. On the contrary, we are investing in areas across the firm and around the globe that will enable us to be better investors on behalf of you, our clients. This past year we have selectively added to our research and portfolio management teams in areas we think will bring long-term value, specifically global market talent and both public and private credit expertise. Adding global market talent enhances our global investment capabilities and enables our investors to be more attuned to the impact of macro forces on the market. While this may not drive day-to-day security selection, it will enhance our investment perspective and decision-making process. In addition, as a large fixed-income manager we recognize the importance of the credit markets and how adding these capabilities will enhance our overall credit expertise. Finally, to address the growing operational complexities of our business and enhance the client experience, we are adding talent to our technology, operations, and risk teams. It is great to see the talent we are attracting in each of these areas.

Second, we are remaining patient. While the current bear market has lasted longer than usual, it has also deeply impacted all aspects of the equity and bond markets, making it difficult for investors to find traditional pockets of safety. During this time, we have remained focused on the long-term, reinforcing our belief that the discipline of our investment processes is paramount. As someone who has always believed that “steel sharpens steel,” these are the markets that differentiate managers. At the same time, we continue to engage with our clients across the globe. I am always taken by how ours is the only business where “when everything is on sale, no one wants to buy,” yet the reset in valuations of tech stocks, real estate, and many other asset classes is creating attractive investment opportunities. We believe investors will benefit from the long-term value that lies ahead.

Third, we are relentless in our focus on strategy and execution. At our last monthly town hall, I reminded the firm that our business is simple and complicated at the same time. Essentially, we believe that the ability to produce investment alpha is the price of entry. This sounds simple, but it is hard to execute. The ability to put that alpha into the hands of clients is what, in my view, defines execution. Again, it sounds simple, but is hard to execute. The intersection of investment alpha and relationship alpha is the art of our business. To achieve this combination, particularly in volatile environments, requires focus at every level and by every person in the organization. Our long-term vision as a firm is to be the most respected asset manager in the world, admired for our people, performance, relationships, and organizational agility. We realize that our vision is ambitious, but we know that you would expect nothing less. So, in environments like this we remain laser focused on strategy and execution, understanding that we must excel in both—relentlessly.

Fourth, we are harnessing the power of being together. Like every firm, we shifted to a remote working environment as the COVID-19 pandemic spread worldwide. Our principles-led culture provided the flexibility to make this transition seamlessly, and the relationship capital we built over the years enabled us to work collaboratively with each other and our clients, despite being physically apart. Our people have now returned to the office and have embraced the opportunity to be together again. We specifically avoided making any broad mandates or requirements about the number of days we wanted people in the office. Our message has been and will continue to be “work where you do your best work on behalf of our clients.” Thankfully, our people have chosen being together in the office as that place. We have always said we are better together, working as one team focused on solving hard problems and learning from each other. Our team understands the value of having daily collaboration, team gatherings, and just being together. These interactions and touchpoints, coupled with the flexibility of our principles-based environment, provide the optimal working environment for our firm and a better experience for you. Not to mention the fact that we have fun being together! This culture empowers us to continue bringing the best of Lord Abbett to you every day.

What can you expect going forward?

We would never attempt to forecast the short-term outlook for the financial markets, nor do we think it matters. What does matter is the long-term. So, when asked what you can expect going forward, my answer is simple. I believe Lord Abbett is special and remains so for one reason: our focus on protecting the core of who we are.

In my office hangs the Lord Abbett Credo, which was published in the Wall Street Journal on November 18, 1929—the day we first opened for business. The opening words state: “An investment firm worthy of the name fosters a sound relationship between the house and the client.” Those words continue to guide us today and articulate our commitment to three core beliefs.

First, we always put the interests of our clients first. Our stated vision is to be the most respected asset management firm in the world. Not the biggest, most profitable, or fastest growing, but the most respected. That perspective aligns us with our clients for the long term.
Second, our sole focus is the management of money. We have always remained in one business. In years like this, when we see our competitors joining or building new ventures, it serves to deepen our resolve to remain steadfast in our purpose: managing money exceptionally well for you, our valued clients and partners.
Third, we remain committed to an independent perspective. Fueled by our private ownership structure, we pride ourselves on how this independence shapes our perspective. By eliminating distractions and steering away from the crowd, we are empowered to make informed, long-term decisions on your behalf.

So, what you can expect from us as we enter our 94th year? More of the same—with passion. I find it hard to imagine a more complicated world for investors or leaders than what we have experienced over the past few years. From the start of the pandemic in 2020 through last January, all of us have endured one challenge after another. With that said, it is hard to believe how much the world has changed in such a short time. The events of the past few years point to an ever-quickening pace of change and challenge in the future, which will, no doubt, cause a high level of uncertainty. It is in times like these when I am reminded of the Sieg rules, which I tell my four young daughters on a regular basis. One, always do your best; two, always be kind; three, always tell the truth; and four, always do what you say you will do. No matter how crazy the world may get, reminding oneself of these rules helps slow things down and provide clarity in the moment.

So, at this moment, I want to close by saying how optimistic we remain about the global capital markets, the resiliency of the economy, and the future of our firm. We firmly believe that despite the short-term performance of the markets, this past year was a success, and the long-term future looks bright.

On behalf of everyone at Lord Abbett, I want to express our gratitude for the trust you have placed in all of us at the firm. Every day, we are energized and excited by the opportunity to compete in this great industry. That is something we never take lightly or for granted. We look forward to working closely with you—focused on the long term—for many years to come.

Happy New Year.

Sincerely,

Douglas B. Sieg

CEO & Managing Partner