Bill Black, a veteran high yield portfolio manager, has joined Saybrook Fund Advisors LLC.
Saybrook Fund Advisors LLC
Distressed debt shop Saybrook Fund Advisors LLC has brought on well-known high-yield portfolio manager Bill Black to launch the firm’s first high-yield individually managed account strategy.
“I believe that is the wave of the long run by way of the way to manage high-yield munis,” Black said of individually managed accounts.
Black joined Los Angeles-based Saybrook, which invests in distressed and defaulted debt, on Tuesday as co-portfolio manager. The firm’s co-managing partners and co-portfolio managers Jon Schotz and Jeff Wilson round out the investment management team.
“We now have been attempting to expand our platform and thought it was a natural progression [to launch an SMA fund] as we already go way deep in credit on the distress side,” Schotz said.
“We wanted someone with numerous experience in high yield. It was a no brainer to call Bill.”
Based in Chicago, Black’s profession in municipals goes back to 1984. Prior to joining Saybrook, he was a senior portfolio manager at City National Rochdale since 2016 where he managed the City National Rochdale High Income Municipal Bond Fund.
Before that, Black spent nearly six years as a senior high-yield PM at Invesco. He held the identical title at Van Kampen Investments where he began in 1998 and worked for greater than 12 years.
SMAs, a portfolio of individual securities owned by one investor and managed by an expert asset manager, have seen explosive growth across the municipal market lately, with Bloomberg reporting $1.63 trillion in AUM. Some have pegged SMAs at 25% to 30% of the market.
But nearly all of those are high-grade muni SMAs, as SMAs that put money into junk-level or unrated credits are few and much between.
That is partly “just the character of what number of high-yield municipal portfolio managers there are on the market,” Black said. Although there are some “great portfolio managers with large funds” available in the market, “that is going to be rather more hands on, something I’m rather more willing to do than other portfolio managers could also be eager about,” he said. “You wish the fitting investors, the fitting team and the fitting portfolio manager.”
Considered one of the advantages of an SMA is that it allows managers to buck outflow cycles that pressure mutual funds to sell to maintain up with redemptions, he said.
“What’s great about SMAs versus a fund, from my standpoint, is that you will have longer-term investors who need to stay within the bonds and hold them,” Black said. “The entire redemption and flow issues that mutual funds and ETFs have, where they’re forced to purchase and sell when everyone else is — we’ll be the reverse,” he said. “We’ll be the buyers.”
Saybrook plans to source bonds from each the first market — taking a look at speculative deals from nontraditional broker-dealers — and secondary markets, where “it’s about relationships,” Black said.
“It’s great to have a very good deep staff that basically understands distress since it allows us dig into deals that others will want to pass on,” he said.
The firm shall be in search of opportunities in sectors like senior living, land-backed deals, and better education.
“We do not care about headline risk and our mandate could be very flexible,” Schotz said. In terms of idiosyncratic and deeply distressed credits, “We do not mind putting in that cash so long as we get a return on it and hopefully control the situation.”
The expansion of SMAs and ETFs marks certainly one of the large trends that Black has noted over his decades-long profession within the bespoke speculative muni bond space.
The departure of major Wall Street firms like Citi marks one other big change, and one whose impact within the high-yield market has yet to be tested.
“Liquidity seems pretty good in high-yield munis right away and it’s until we get certainly one of these redemptions and everyone seems to be selling,” Black said. “That is going to be a possibility for us but it may be an actual test for the market overall.”
Jessica Lerner contributed to this report