Vivian Altman, Managing Director and Head of Public Finance at Janney, has worked as an investment banker in the public finance industry for over 35 years. She is a founding member and Co-President of the Northeast Women in Public Finance and was named a "Trailblazing Woman in Public Finance" by The Bond Buyer in 2011. She'll share her expertise with Bond Buyer Executive Editor Lynne Funk on the state of the muni market.
Transcription
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Lynne Funk (00:09):
Hello everyone and welcome to this Bond Buyers Leaders Forum. I am delighted to welcome our guest today, Vivian Altman, a woman who in the muni industry needs no introduction, but I'm going to give her one anyway. Vivian is head of public finance at Jannie Montgomery Scott, and she has worked as an investment banker in the public finance industry for over 35 years. Since joining the firm in 2009, she has been responsible for about 148 billion in managed issuance, but probably more now since I took this from your online bio this morning, she is a founding member and board member of the Northeast Women in Public Finance. Vivian, welcome. It's such a pleasure to have you today, particularly as we're starting to celebrate Women's History Month.
Vivian Altman (00:53):
Lynn, thank you so much for inviting me and thank you to the bond buyer for hosting me today. Appreciate it.
Lynne Funk (00:59):
Excellent. Well, we have a lot to discuss this market. So much interesting things going on, but I want to start off with bond volume and supply in general. After two years of pretty much poultry issuance follow that, were prior to two years of record issuance, what do you think we can expect for 2024 issuance has picked up so far this year. 20 February came in more than 40% year over year, so what do you expect?
Vivian Altman (01:28):
I do think that supply is starting to pick up, and I do think that issuance looks more robust for this year based on the fact that we're seeing more RFPs agree that we saw the statistics for February. February tends to be a lighter month overall, but there certainly was an increase year over year. In addition to that, the forward calendar looks to be more significant and also I think there's more issuance in part because I think the federal stimulus money is running out and so there's probably more need for funding. Right.
Lynne Funk (02:11):
Pent up capital needs that the issuers haven't had. So you mentioned federal cash drying up. Do you think that that is pretty much, or not pretty much is a portion of the reason for that?
Vivian Altman (02:24):
Yes, I think it was. I looked at a website called covid money tracker.com, and when you look at state and local government and other governmental entities combined, the stimulus was about just about a billion dollars of support in the covid period, which if you think about it, is about a quarter of the muni market in terms of the debt outstanding and much of that has already been expended. So with that funding really exhausted at this point and additional funding needs coming around, I think that that is another factor I think for issuers are causing them to look to the debt markets. And
Lynne Funk (03:16):
I'm sure that interest rates, the environment played a role there the past two years, obviously there were higher and issuers kept expecting interest rates to fall, but they hadn't. And now it's like, okay, we're here.
Vivian Altman (03:27):
Well, I think that when we saw rates come down in December, I think some issuers may have waited and now rates are looking stable, but also the volatility has declined and so maybe this is now also a good time to look at coming back into the market.
Lynne Funk (03:45):
Absolutely. So let's pivot a little. What are your expectations for sectors, specific sectors in 2024? Can you talk about any areas of growth that you might see? Yeah,
Vivian Altman (03:56):
I mean I think those sectors that are always kind of capital intensive, transportation, healthcare, I think power and utilities to keep up with just in general economic growth are going to be important. I think general government projects and it is certainly in the older parts of the country like here in the northeast where there is need for rebuilding or renovation and certainly infrastructure. Those are going to be the areas I think. But I also think going forward we're going to talk about transition in general. I think that focusing in a very rigid sense on distinct sectors or even regions is going to become more fluid. I don't think that particularly in having bankers addressing uniquely specific areas is going to be as prevalent. I think there has to be more flexibility in how investment banks or investment bankers are looking at coverage. I think there's going to be more either overlap or I just think for productivity in general, as one area kind of ebbs and another one flows, there's going to need to be a little bit more movement amongst those.
Lynne Funk (05:30):
It's interesting that you say that because I think one of the interesting things I've been hearing from the buy side folks on the buy side is they're like, yes, we care about sectors. Yes, we care about regions, but now it's almost like the geographics of the sectors matter even more because obviously as you know, healthcare in northeast is different than healthcare and rural healthcare and all of that. So I think it'll be an interesting time to see how that pans out.
Vivian Altman (05:58):
I think that's particularly true in healthcare and healthcare, whether it's larger systems or single facility acute care. There's such a differential in how those kinds of healthcare providers perform what their needs are, and I think that's sort of a paradigm, but even more broadly for the market at large.
Lynne Funk (06:30):
Let's stick with kind of some buy-side oriented questions a little from your seat to begin 2024, we've seen some kind of a mix of inflows and outflows into mutual funds. And do you think the mutual fund complex, where does it stand in 2024? Is it as important of a player and a part of the buyer base for Munis?
Vivian Altman (06:53):
Mutual funds are definitely back so far this year in the nine weeks that we've had so far, year to date, six weeks, we've seen inflows, four of them consecutively with inflows and I think net we've had about 2 billion of inflows into the mutual funds. But I think that overall mutual funds are less significant in the market as, for example, separately managed accounts or SMAs. I think SMAs are really much more the dominant player from the buy side in terms of for bankers and for the firms who are on the sell side structuring and placing transactions for our clients, the SMAs are much more of a significant factor.
Lynne Funk (07:46):
It's great you bring that up because I think it's like, I almost think you were at national Outlook bonfire almost, I swear every market panel had some sort of well SMA growth, SMA growth and some folks have it paid at a trillion, some a trillion and a half. How do you see that shift? You mentioned it is shifting toward more separately managed accounts, more sma, ETF driven demand. How has that changed the way you're getting deals done or structuring your deals?
Vivian Altman (08:14):
I think in general you need to structure to demand. I mean you have to price to demand and where the demand is right now, there is a lot of money in the market and there is not enough supply to meet that demand. And it sounds kind of crazy, but it's not that easy to put money to work. It takes time and particularly when we have this situation where demand is eclipsing supply and even though we just talked about the fact that supply is increasing, it's not increasing fast enough for the amount of money that there is to put to work. So I think one thing we've seen more recently is that the SMAs, which used to have a more narrow area of demand, have extended where they're buying for one thing, the longer end of the curve has steepened. And so I think we're seeing more demand that way as there's more, not obviously duration, but there's more spread. But one thing we're also seeing is they want more call protection, which is sort of obvious if you're anticipating that there will be cuts, we can talk about that in a minute, but if you anticipate that the Fed will cut rates at some point, you can decide when that might be, but you're going to look for more call protection. So what we are seeing is sort of a tenure, normal kind of call protection and really sort of structuring or pricing to that area of demand.
Lynne Funk (09:54):
Okay. So yes, let's talk about munis have been somewhat, well outperforming is the word. How much can they continue to do so what should this market expect in terms of what appears to be still a somewhat unexpected rate and policy environment in the near term? So
Vivian Altman (10:14):
Munis are expensive. We have seen the ratios really low and they do need to correlate closer to treasuries. I think as long as we still do have this sort of disconnect between supply and demand is going to stay that way because even though they are expensive, there are a lot of buy-side participants who do want that tax exemption. It is hard to say. I mean certainly there were a lot of expectations towards the end of the year for rate cuts and I think even as soon as March it's not going to happen. And more frequency around the rate cuts that I think it's been very clearly telegraphed that that's not going to happen and if the Fed is sticking to a 2% target and a close to full employment target. So I think we're going to, because there has not been a lot of volatility because at least for this early period in the year, we have both spreads being stable or remaining stable and rates staying stable. There doesn't seem to be an event. Now tomorrow the chairman of the Fed is speaking to Congress, I think people are waiting for that and Friday we have an employment number. So I think by the end of the week, certainly into next week, we may have some more direction around that. But the prognosis for cuts has changed dramatically and I think has certainly moderated for sure.
Lynne Funk (11:59):
So thinking about that, thinking about interest rates, muni yields in general, they're still on the high side from a historical standpoint. So high yield market, let's go there. The past, well I think it's now been, if I'm correct, eight consecutive weeks of inflows into high yield. Do you see high yield? How does that fare going forward? Do you expect continued outperformance there, particularly if yields do begin to fall once the fed cuts rates? Well,
Vivian Altman (12:27):
I agree with that. I think that money has, we've certainly seen money coming into the high yield funds and there has not been a lot of issuance in that space. And I do think there's an opportunity for outperformance particularly as you point out if rates do come down, it is an interesting market because there has not been a lot of issuance. There also hasn't I think been a lot of default activity in that space last year. But there also hasn't been a lot of issuance. I have found in the past when I have been involved with either lower rated or unrated transactions, particularly those that are more project finance related, they really haven't been rate sensitive as much as they are structure sensitive. They are much more around how much equity is in the project, what is the project, what are the fundamentals of the project.
(13:38):
And I think in the end, speculative is speculative and credit analysis. Credit surveillance are really the kinds of concerns that those buyers of high-yield products will focus on. And it doesn't matter in some cases how much rates are, it's the impetus to purchase a bond that will certainly provide a greater yield but is also going to pay back. So remains to be seen. But certainly if you can find transactions that will provide those will meet those criteria and it may cause some projects that may have been on hold or may have waited to test the waters a little bit and see if this is a good time to sort of return since there is less supply at the moment and rates have moderated and there's less volatility and there is more money coming in might be a good time. Right.
Lynne Funk (14:49):
Do you think in general that the muni market is going to be a little bit more credit driven going forward? Just in general? I'm thinking in terms of you say the high yield, it's not rate driven as much as maybe credit. And the reason I'm asking is as you mentioned earlier, the federal funds drying up. So issuers are coming into this with less in their coffers than they used to. Do you think that folks might focus more on credit?
Vivian Altman (15:18):
Look, I think people are always focused on credit. I don't think credit is ever something that's far away from from anyone's focus. I think you are always, I think both on the buy side as well as on the sell side, I think you always have to take a look at those fundamentals and when you're pricing a transaction and when you're making a decision even to underwrite a transaction, what are the underlying components of it and the feasibility of it. So I think credit is always an important element at
Lynne Funk (15:56):
The forefront. So now let's get into some things that uncertainties in the market because I think that is an interesting way, good segue sort of tax reform 2025 an election this year. Those are some rather large uncertainties. Can you talk about from what you're thinking, what you're seeing, what you're hearing?
Vivian Altman (16:22):
I think one constant in our market is always uncertainty. I think the first one we've sort of become immune to it, but as the federal government on Friday we had sort of an agreement on federal funding. Six of the 12 spending bills that have to get passed were punted to this Friday. So they have till Friday to pass spending bills. And then the other six go to, I think it's March 22nd, so we're in March to fund spending bills for a fiscal year that ends at the end of September. And whether or not that gets punted again or whether they actually come to some sort of agreement, I don't know. But we're six months into a fiscal year and we don't really have any kind of funding plan. So I think that at a minimum that is disturbing when we look at periods of time where we had a lot of questions around, and I know Fitch just recently affirmed the national rating, but we've had periods of great concern around defaults and other things and certainly that has ripple effect and repercussions elsewhere in the markets. So I think that's sort of the immediate term of risk.
(17:57):
You mentioned tax reform next year when we get past the election, which is another sort of risk and is going to have an impact maybe later in the year, is things really heat up in the election cycle, but tax reform, both the state and local government tax cap expires next year as does the A MT phase out. They both were a part of the tax cut in jobs act of 2017. So either they're going to deal with that and do something else with it. They will end, which will have an impact on a MT bonds. They will again be more of a spread between other tax exempt bonds they will, that will have an impact in retail, especially in those states that are more directly impacted, particularly by the salt cap. So that's kind of another uncertainty for sure. And then I know we're going to talk about that in a bit, but certainly I continuing regulation of our industry as well. So I mean there are some other headwinds in terms of uncertainty.
Lynne Funk (19:13):
So I think that's a good, another segue. Yeah, the regulatory framework. I mean what's the impact on the industry? Would you argue that some of the proposals maybe ultimately help investors with greater access to information, trade data or supervision? Can you talk a little bit more about that?
Vivian Altman (19:33):
I think that the speed and frequency of regulation or new regulation has just been kind of staggering. It's been dizzying. I mean we have in immediate term four things coming. We in May, we are going from t plus two to T plus one plus one in terms of settlement we have.
Lynne Funk (20:03):
You think that's going to be a big deal?
Vivian Altman (20:05):
I think it is a disruption for one thing, which I'll get to all of these have a disruption that are similar. I think it's inevitable. We're going to the one minute trade rule. There are new proposals again on best execution. And then as you just mentioned, some changes around supervision as we're now I think in a permanent work from home kind of environment. And although I think the spirit of it is very much around increased transparency and perhaps better information, there is a crossover point where the distraction and the disruption from an operational point of view, from increasing technology expenditure and requirements just become somewhat untenable. We are also facing two years that we've just had, as you mentioned at the beginning, low volume certainly is the impact on the municipal space where we've had less revenue and competing concerns Operationally. Administratively in terms of the burden there is I think a point where especially for smaller firms, not only underwriting firms but municipal advisory firms where the burden and the challenge of maintaining and keeping up with the regulations do have a counterbalancing effect from what the rulemaking is trying to achieve and not sure that it's really, some of these rules are really accomplishing anything more for the customer, particularly for retail customers, which is I think the prominent interest.
(22:05):
So I think that we may be reaching a tipping point where it is really maybe even more harmful as you may start pushing entities
Lynne Funk (22:17):
Out
Vivian Altman (22:17):
Of,
Lynne Funk (22:19):
It just gets too expensive to do business in this market.
Vivian Altman (22:22):
It's just too challenging from all of the compliance requirements. And we already are in our market, have a lot of compliance and regulatory and tax code and there's just so many levels of regulatory and other statutory and compliance rules that we have to comply with. There is a point where it's just you're spending more time on that than actually on business or business execution.
Lynne Funk (22:54):
So let's talk a little bit more, I mean that's some of the causes. Let's talk about the state of the industry. We city fully exiting UBS leaving the negotiated market every week, every other day. I feel we're talking about where some of those folks have are landing in, they're moving on to different firms. But what effect does this having on overall, do you see this as a potential growth opportunity and where does Jannie fit? Where do you fit?
Vivian Altman (23:26):
I think the good thing up until now is that most, if not all of those people are continuing to find a home. We are, I think overall a very congenial business. We're collaborative and cooperative with each other. So I think that's a good thing and that as a consequence presents an opportunity for those of us who are smaller or who have been growing as we have been and looking for talent. But I guess to first maybe think about sort of the cause or what's been happening. So I think a lot of this comes down to the severe compression in underwriting spreads. I mean, I think we're sort of starting from that. I think that the question of profitability is a challenge. I think a lot of the firms, the larger bulge bracket firms, if you are not a senior manager on a large transaction, there is no value proposition.
(24:41):
And if there's a struggle as we've had in the last two years, then really the only opportunity to curtail or contain expenses is to lay people off and lay people off who in another year perhaps are more productive. It's a really unfortunate way to run your business in my opinion. I think that the globalization of not only the economy but of finance has made munis to a large extent marginalized from large firms and their overall business and have less relevance. And I think there's a lot of competition for capital and municipals probably are too small as a component of the overall business to be meaningful in terms of the use of capital, however little the capital usage is. And so there's, I think pressure internally and competition for resources broadly and munis are not going to win that battle, particularly in the state of our business right now.
(25:55):
So I think to be successful, you have to be extremely strategic, very focused, very deliberate about what business you're going to pursue and what business you may not pursue because the spreads don't make it worth it to. You're not going to earn enough on a transaction to be able to justify the resources to pursue that business. I think beyond that, I think the departure or even the reduced engagement from some of the large firms has to inevitably have an impact on issuers. Many of them, particularly those with larger balance sheets, I think are not deploying their balance sheets in the way they used to. I mean, I'm hearing that as we are talking to people that we're looking to hire, they're not necessarily applying their balance sheets evenly to all clients. And so if I would think as an issuer, I was one once that this might change how they view banking, the services that they receive and they're how they're potentially selecting underwriters.
(27:21):
I think that focusing on the quality of the service and the consistency of service and execution may become more important. And so I think the business is reverting to a concentration of smaller firms. I wasn't practicing then, but I think in the sixties and seventies it was more of a cottage industry. We certainly had a lot more participants and there were smaller, and I think this is sort of maybe where we're heading where you can see that more consistent execution and greater focus on the client and the client's needs and have a coordinated practice with a platform that is really sort of dedicated and committed. And so that's where I think our firm fits in and that's where Jannie is. We have had a very consistent view on the business and we have been growing. We do have a consistent commitment of capital to IT, to the business and a long-term view on it.
(28:37):
We find that being a co-manager as well as a senior manager is productive for us. We generate revenues that are meaningful to the firm in a mix of kinds of businesses, business in different regions, in different sectors or types of businesses. Some of that overlaps and our bankers overlap in that regard as well. And so I think as spreads continue to tighten, you really are going to need to have investment banks and bankers very focused. I think as we talked about earlier, where there is a lot more flexibility in how you cover sectors, accounts, and regions. The other thing that I think is really important, we talked about volume and supply. It's not just the numbers in terms of par, right? But it's also the numbers of transactions. And even if you look, I wrote this down, if you look in 2020 when we had a really big year, there were 14,000 total
Lynne Funk (30:00):
Transac transactions,
Vivian Altman (30:01):
Individual deals. In 2019 there were 12,750. Last year there were 9,200. And I know we had a bad year in terms of volume. But issuers and I understand this, it's easier to do fewer deals that are larger than doing multiple deals that are smaller. It's better liquidity, it's easier to market a larger amortization. And so that is having an impact as well. If you think about having less opportunity for bankers, if you're in a rotation in a pool, if there are four deals in a year from a large issuer instead of six, the likelihood is you're not going to get, you
Lynne Funk (30:52):
Might not get that this year and now you have to wait an entire other year
Vivian Altman (30:55):
To be part of 18 months. Exactly right. So that is also having an impact. There are fewer deals in any given year. So there are a lot of different factors here. And I do believe that it tends to favor smaller firms, less overhead, less the ability to be more nimble. And I think for us, the ability to have really strong marketing, we have really strong distribution. That ability to be nimble in really having excellent execution and being profitable, A scale of size of transaction in a variety of roles is what's going to make the difference.
Lynne Funk (31:46):
Is there a world in which underwriting spreads rise at all? How does that happen?
Vivian Altman (31:56):
It's a good question. I think it's challenging. If you are a CFO and you're in front of a board, it's a little difficult to justify in a public environment, why are you paying more? And you can argue better service or to some extent it's what the market bears. But as long as there's someone out there who is chasing market share, that's another element. We're not interested in market share. We're interested in generating revenue, paying our people a fair compensation. It doesn't matter to us whether we're in the top 10, top 20, we just want to generate appropriate profits. But as long as you have firms that are just driving down spread so they can be in the top 10 or the top five, that C ffo is potentially always going to have another option. And so we're doing it to ourselves really. And it's been for a while. It's not new.
Lynne Funk (33:03):
Alright, so it is women's history months and your position, the co co-founder of Northeast Women in Public Finance. You were co-president for a while, for a long while, and you're an advocate for women and underrepresented groups. Talk about it. How has the muni market evolved to be more inclusive? Has it?
Vivian Altman (33:34):
It has and it hasn't. It's definitely improved. You definitely see more women, people of color on trading desks and across the industry. I think what's helped certainly in our space in the muni space is that we have a lot of issuers that are representative. And you need to, I think, bring forth when you're covering those clients, people who look like them. So that has been helpful. But I think we've stalled. We just recently had the third woman heading a public finance department. My dear friend, Beth Coolidge over at Oppenheimer. I'm thrilled for her and a long time coming, but we're three, it's not a great number. And
(34:30):
Where are the women in higher levels? Where are the women who are heads of fixed income or capital markets? And I don't see the ascension to higher ranks and when there are those openings who's vetting the people or the candidates for those openings. And so I'm not sure that we've gotten so far in progress, but I'm not so sure that that's really developing further. And so yeah, organizations like Northeast Women in Public Finance are really important so that women, especially younger women, but really women at any level of their career have mentoring and networking and professional development and programming and really a community to help them navigate their careers. And the one thing I would say is it's important for women and also for, as you mentioned, it's equally important for other underrepresented people who are not as prevalent in our industry. You have to advocate for yourself. You cannot assume that anyone is going to sponsor you or think about you in that room when they're contemplating a new opportunity or a new role. It's not going to happen. You have to find those opportunities. You have to find those openings and put yourself forward because it's like unto they're not, it's not going to happen. So you really have to do it for yourself.
Lynne Funk (36:16):
Do you think the media market lags other financial markets in this space too? We lag everything else.
Vivian Altman (36:23):
No. I would say probably, this is sad to say, I think we're probably a little ahead because I think if you look at some of the other segments, they're worse. I think they're much more populated with white men than we are. And again, I think a lot of that is somewhat forced by our clients because our clients are representative of the population at large and understandably they want to be serviced and see at the other side of the table people who look like them.
Lynne Funk (37:00):
What do you tell a younger woman in particular already? You're telling us this business isn't that profitable, you can make more money other places. What do you tell a younger woman to come in? Why she should, why any person who's underrepresented, why do you come into this business? Look,
Vivian Altman (37:17):
You know what, because it's going to be there. Because roads always have to be built. Schools need to be renovated. We have a very unique opportunity in this country through the tax exempt markets. Nobody else has the opportunity to leverage fees, taxes, funding mechanisms, and build today a project that can be used over 20, 40 years. It is a very unique opportunity for our public sector to be able to build projects and create economic development from that. And it is a very satisfying thing to be able to look down the road and say, I built that stadium or I was involved in funding that dorm or whatever part of it you're involved with. And people don't leave. We all know people in this industry who love it and are connected to it, and it is a nice way to make a living. It is always challenging, but we survive and we continue and we will weather all these storms and it navigates itself to a new level.
(38:38):
And so as I said, it may be reverting back to an industry where the smaller firms are more prevalent and that's fine. As I said, people who had to leave UBS and Citi have all seemed to be located in new places. That's great. We are still looking to hire. I know there are other places who are hiring, and so everyone hopefully will find a place. And it's a very satisfying industry. It's a satisfying business. And I said to somebody recently, you don't find public finance. Public finance finds you. And I do believe that. I think that is true. And so people don't leave. We all persevere and we stay at it. So it's been a great career for me. I mean, I'm not done with it yet. And it's been extremely satisfying. I've enjoyed it. I've enjoyed the people in it. It's a wonderful community, as I said earlier, and it's given me a great livelihood. And I think that's why I would encourage somebody to,
Lynne Funk (39:52):
I would agree. I think it's so spot on. Public finance finds you. So many folks we talked to and you talked to, I never thought I was going to get into Munis. How did I get into this? But they do. They stick around. So v, you think Anything else we didn't cover today that you want to leave the audience with?
Vivian Altman (40:10):
Gosh, Lynn, I think we covered what is topical now. I think as we sit here today, probably by the end of the week, it will all be different given the jobs number and the testimony from the Fed chairman. But I think that's That's
Lynne Funk (40:26):
Part of the fun, right?
Vivian Altman (40:27):
It's what it is.
Lynne Funk (40:30):
Right. Vivian, thank you so much. This has been a lovely conversation. It's great to have you here. Thank you to everybody for tuning in today and
Vivian Altman (40:39):
Well thank you again for having me. It's always great to talk to you and I really appreciate the invitation from you and from the bond buyer. So thank you so much.
Lynne Funk (40:47):
You're quite welcome. Thank you everyone again for tuning in and we'll see you next time.
