Voice of Experience: Michelle McCarthy, Chief Risk Officer, Russell Investments

By Pamela Weinsaft (New York City)

As the saying goes: “A pound of pluck is worth a ton of luck.” That is certainly the case for Michelle McCarthy, Chief Risk Officer of Russell Investments. While she attributes much of her success to luck, it’s clear that her moxie is really what’s allowed her rise to the top of her profession. Said McCarthy: “I’m willing to be a bit of a maverick and willing to do things even when I don’t feel completely ready.”

At 13, a fearless McCarthy declared her intention to major in political science. For many, that would be precocious; for McCarthy, it was just part of her college life, which began at that age. Of the University of Washington’s experimental “Early Admissions” program, said McCarthy, “was a really enjoyable experience. In high school, they are much less forgiving of ‘nerds’ than they are at college. It was a kinder situation socially than I’d been in before. ”

After graduating university at the age of 17, she attended Harvard’s Graduate School of Arts and Science. To earn some money while earning her Master’s, she took a part-time job at a student loan agency updating spreadsheets. After a short time there, she realized that she had found her true calling—finance.

McCarthy reminisced: “I remember thinking ‘I’m enjoying this more than I’m enjoying my supposed career.’ Just the fact that I was updating spreadsheets caused me to understand how you could use them. And then I met some of their investment bankers who would do bond issues from time to time so I started to understand where the money came from.”

An ace in the hole—a letter from stockbrokers she’d worked with to Bankers Trust—helped McCarthy get an interview and the rest is history. She was hired as a salesperson on the derivatives desk at the bank in 1986, the very early days of OTC derivatives.

She said, “It was a really weird beginning to my finance career. It was pretty funny doing that job with absolutely no finance understanding. I didn’t have a strong enough math background; a lot of it I just learned on the job. Watching how financial instruments paid off under different market conditions, trading them and watching what happened as markets changed…that’s what I needed to do in order to understand them.” She laughed, “I was really lucky I didn’t get fired at the time.”

Six months in, they had her do trade interest rate swaps. “Why they took that risk on somebody with no finance background, I don’t know, but it was a very powerful learning experience for me. It was one of the best things that happened to me in terms of me understanding products because I’m pretty tactical.”

After a few years of hard work at BT, luck landed McCarthy in France, trading equity options, regardless of her lack of experience in that field. “I’d never done equities and never done options” she said, “but it was another incredible opportunity.” Another move found her selling equity derivatives to pension funds and asset managers in Northern Europe.

Making It All Work

When McCarthy became pregnant with her first child, she wondered how she would be able to do it all. “People I had been working with who had small children also had wives that stayed at home. The men were all putting in face time, staying until 9 PM, making bets and throwing balls. I was truly perplexed as to how I was going to make it all work.”

Towards the end of her pregnancy, McCarthy was offered a role as market risk manager for Europe, effectively moving her to the control side from the selling side of the business. “This was a more manageable career for somebody with a child. In a risk management role, I was able to have a more flexible life. I think I picked the role more because of that, even though I—again—wasn’t 100% sure of what the risk management crew did at the bank.”

She learned quickly, and was soon enamored with risk management. As market regulators at the time were launching the market risk side of Basel I, McCarthy got to sit on Bank of England practitioner panels and work with the regulators on proposals to ensure they had the least distortive impact of dealing with market risk. Once again, “it was lucky timing,” explained McCarthy. “What looked like it would be a ‘Mommy track’ career in staff function became something very important.”

Five years later, in response to the crisis in asset management around structured notes and money funds, BT moved McCarthy back to New York to head up a risk management group. “Our team measured the risk content of funds, not just by the ratings but by how the funds were affected by changes in the interest rate. The tools we developed—both software and a service—were sold to other asset managers so it became a profit center instead of just a control group for the Bank.”

Over the next seven years she shepherded that project “in one form or another.” She also returned to her hometown of Seattle, where she continued to sell the risk management service from her home. It took her some time to get used to the new work environment. “I telecommuted but was on a plane three days out of every five,” she explained. “My first month doing it, I would get dressed up and put on high heels because I was afraid I would lose the thread. I had child care for my child and a separate office in the house so I could keep it quite distinct but I didn’t have people around me to remind me that we were working and the kitchen is right there. It was much different than being in an office.”

“However,” she added, “I learned to really enjoy it. What I found was that I had the pressure of a difficult business plan to execute and that keeps you beautifully focused.” McCarthy continued, “For the first time of my life, I wasn’t on a trading floor and I was able to do a lot of articles and written material I wasn’t able to do before. I had assumed that I must have some form of ADD but it is remarkable how productive you can be when you remove all the people and the other distractions.”

Important Lessons

In 2003, she was approached to be the head of market risk with Washington Mutual. She made the move and, ultimately, also took on operational risk for the bank, going from the buy side back to the sell side. McCarthy was forthcoming when discussing her affiliation with the now-defunct bank: “It is hard to have that stain on my résumé. Being the risk management person for a bank that went down is not a popular thing but I wouldn’t trade it for anything. When an institution is under duress you can learn some important lessons about risk management. I think the knowledge and learning that I had there was amazing.”

She continued, “Every place had issues making sure the valuations were supportable but those in the mortgage banking industry had to deal with it earlier and more completely than other folks who were really caught off guard by it. Everybody has some experience with cost cutting but different places do it more or less well. In a lot of cases, Washington Mutual did what they could to keep people with organization to the bitter end, which is not always easy to do. It did engender a lot of loyalty among employees with that firm.”

In early 2009, McCarthy joined Russell as the Chief Risk Officer, returning once again to buy side risk management activity. Yet in spite of her success within the risk management industry, McCarthy feels odd about giving advice to others coming up in the industry. When pressed, McCarthy stressed the importance of moving beyond generalist skill and getting specialized and detailed, without getting pigeonholed. “You need to be a bungee jumper, get way down to the depths and details and way high up to see the corporate strategy.”

On the secret to her own success, McCarthy said, humbly, “You would think that the industry—finance and investment banking—would only reward those who are ‘greed is good’ Gordon Gecko types. But when I looked at why I got well reviewed or why I got promoted, it was for getting along with peers. That is misunderstood by a lot of people in these jobs. I was never the smartest one or the most quantitative or even the one who made the most money as salesperson. And I never was the best trader. But I consistently could work with a team.”

Indeed, McCarthy’s story is one of luck, of knowing when to take risks, and how to rise above the fray. “I hear and read the advice people give women about the professional way to do things,” she said. “I sort of bumbled along more and didn’t get too dinged for it. I managed to not be as deliberate as some women are in their careers but ended up in an enjoyable job beyond my wildest imagination.”