With a storied career spanning 35 years in the municipal buy-side, BlackRock's head of municipals talks with Bond Buyer Executive Editor Lynne Funk about the evolution of the municipal securities market as he prepares to retire.
Lynne Funk (00:09):
Hello everyone. Thank you for joining us for today's Bond Buyer's Leader session. I'm Lynne Funk, executive editor at The Bond Buyer. I'm delighted to welcome Peter Hayes, who is managing director, chief investment officer and head of the municipal bond group within the portfolio management group at BlackRock. Peter is also global head of Financial Institutions group investment business. Peter is a member of the PMG Executive Committee and BlackRock's Global Operating Committee, and he also leads the municipal bond operating committee committee responsible for portfolio management, credit research, trading and strategy. Peter has been in the muni industry, buy-side for more than 35 years, and he's actually set to retire from BlackRock where his service with the firm dates back to 1987, including his years with Merrill Lynch investment managers, which merged with BlackRock in 2006. Peter, welcome and thank you so much for being here.
Peter Hayes (01:07):
It is great to be here. Thank you very much for having me. Beautiful setting, rainy day, but beautiful setting. Thank you for having me.
Lynne (01:13):
Great, and congratulations on your upcoming retirement. Thank you very much more on that later, but while you're still with us in the muni world, Peter, and you and I spoke in 2022 the last time on a leader session and we saw massive losses across all markets and munis definitely weren't spared, and while 2023 did not end up being as awful as 2022, we actually ended in the black with over 6% returns, but there were still some very volatile swings throughout the year. So now we're coming into 2024, and I'd like to ask you some of the questions I asked in 2022, because some of those themes still existed in 23 and likely in 24. I'm also hoping you can kind of impart some wisdom for the industry, particularly a younger generation coming up on expectations for it in the future. So first off, you said in 2022 that Munis would likely remain a rate driven market and that definitely held true in 23 as fed policy was a large driver for all markets. So do you still see Munis as being rate driven or will we pivot to more of a credit driven one or something else entirely?
Peter (02:23):
I wouldn't say there's something else entirely. First of all, I'm glad I kind of got it right and you reminded me of that. That's good to know. I would say, I mean being a fixed income asset class means they're going to be to some degree rate driven anyhow. But when you think about total return, there's two components, right? There's the price movement and there's the carry or the income. So in this case, I think for many years rates were so low the carry wasn't a big part of total return. I think more of the movement was around interest rates and interest rate sensitivity and obviously when you come from a very low rate environment rates move up, you're going to get a lot more impact to your principle, to your price than you would in a higher rate environment. So I think there's still going to be a component that it will be rate driven.
(03:10):
The market is still very much trying to figure out what the Fed is going to do this year. It's interesting when you look, you talked about 2023 being a volatile year, and we ended up on a strong note, but we did for the benefit really of one month. That was the month of November, it kind of carried the year, if you will. The rest of the year was pretty choppy up and down as the market tries to figure out what the Fed is going to do, what the economic data has meant. And I think that the market got ahead of itself for a period of time pricing, and I think at one point as many as six fed rate cuts in 2024, we didn't necessarily believe that. In fact, I think there's still a 60% chance that the Fed will cut rates in March. Not a believer of that either, particularly given the jobs report we just saw.
(03:56):
So I think the market, as long as we're trying to figure that out, you are going to see some volatility around rates. But again, that volatility is going to be a little bit dampened, the rate volatility at least because the carry component is going to desensitize, if you will, some of that going forward. I do think the other thing to think about here is just the liquidity factor is liquidity in my view, liquidity, and I don't want to say the market's illiquid, it's liquidity at what price, but I think that the liquidity component has changed quite a bit, probably post financial reform 2008, 2009, we've seen a lot of regulatory changes. We've seen banks I think reduce their risk taking. So a lot of that is changing the liquidity drivers of the market and therefore you see bid to offer and some of the price sensitivity, some of the volatility has increased even in periods where it might not be as pronounced as it might've been normally. So yeah, so I think it's not something entirely different. I think it's just less rate driven perhaps than it was when we spoke in 2022.
Lynne (05:03):
Okay, that's great. That's a good way to move into, I was going to ask you about credit, but I think we'll come back to that. Okay. I'd rather move into sort of the demand components in this market and you say liquidity, let's go to mutual funds. Obviously outflows for 2023 totaled about I think 20 billion per ICI data, 9 billion per Lipper thereabouts, but that was obviously a dramatic turnaround from the 120 to 145 billion in 2022. So I guess I want to ask where does the mutual fund complex stand in 2024? Are they as important as they used to be or will they rebound as some folks like to think they might? So
Peter (05:44):
I think that's a great question and important question because it does have a lot of implications for how firms set up to take risk and future trajectory of growth and et cetera. My premise has been that if you think back what happened in 2022 when the index was down, what eight and a half percent? We lived in a low rate environment for a number of years, and when that happens, particularly people who are seeking income, what do they do? They either do one of two things to try to get more income, they take more duration risks than they would normally take, or they take more credit risks than they would normally take. We saw a lot of flows into high yield proceeding 2022, and I think everybody saw what the result of that was. We had some really negative returns. I think people felt pain in their muni muni portfolios that normally they don't think of that portion, so they take risk in equities or other areas of the fixed income markets, but they don't think of big negative returns in the muni market.
(06:43):
And they saw that in 2022. So I think entering 2023, they reevaluate how they want to express their investment in munis, and we saw that to a large degree ETFs. Were a big beneficiary of that. I think there's a lot of money going into SMAs, and when you think back when I started in the market, there used to be actual physical bonds and people would get a physical bond mailed home, that's how old I am, and there'd be a coupon and you'd clip a coupon and you'd take it to the bank and you'd get a check and that was your income. And then we had the evolution of DTC and so forth, and then the growth of both open-end funds, closed-end funds, and then kind of SMAs. So I think there's a bit of a migration back to that element of buying an individual bond and just having a manager manage it for you, particularly in terms of the credit risk.
(07:32):
So a lot of funds, it flows into SMAs. Now, SMAs don't have to report our mutual funds have a vehicle to report flows, so they're much more transparent. We can see what they do. SMAs not as much, but from we see it in our business, a lot of the flows have been going into SMAs and ETFs, and I think because rates have reset higher, people can come back to that more traditional expression of municipal investment in terms of owning individual bonds in particular, you buy a bond if you're right on the credit risk, you clip the coupon, you get the income at the end, it matures and then you do it all over again. You don't really mind the volatility in between. You don't need to think about necessarily tax loss harvesting or redemptions as you would in a mutual fund. So I think to answer your question, flows will come back at some point.
(08:21):
There's a lot of value in funds, and I think it's a lot of it is how fast can mutual fund yields catch up to the market? Portfolios have to turn over distribution yields are based on book yields, so that's going to take a little bit of time, but there needs to be a reason for those investors who exited the market in 2022, which you said that was, that's a big number of outflows. And when you think about it, every time we've seen big outflows the following year, we've seen big inflows because there's been value created. That didn't happen in 23, we had more outflows. That's very, very unusual. So I think a lot of those investors need a reason to come back to the market a reason in terms of either much higher yield, some big dislocation in the market that occurs, some creation of extraordinary value, whatever the case may be for them to come back. So I think in the meantime, we're going to have flows probably more into SMAs and more into ETFs, unfortunately. And that has implications again for liquidity, particularly long end mutual funds. There's not a lot of demand for long end securities more broadly until we begin to see those flows come back into that category, which will happen when we see value be recreated, which is just not enough value there in the market.
Lynne (09:36):
When you say it's unfortunate, it goes into SMAs and ETFs is just because of the,
Peter (09:40):
Hopefully I didn't say unfortunate. Did I say unfortunate? I didn't mean unfortunate. I said it's just that those, I think it's just more a change in the expression of the investment and SMAs people have gone back to the permanence and definition of buying an individual bond and ETF, they offer transparency, they offer low fees, and also the nature of financial advisors have changed. There used to be a lot of the advisors and how they built their business and how they transacted. Now, a lot of this have gone to family office and registered independent advisors. A lot of those are more model driven. So a lot of the solutions that are being created around models, it's easy to create models and execute a models using ETFs. It's just easier. So again, I think we need sort of a change in value to get people back into those mutual funds.
Lynne (10:32):
So the other challenge I think in the past two years, and I think you would agree is issuance or the dearth of it, right? The
Peter (10:41):
Head scratcher,
Lynne (10:41):
Yeah, 2223 issuance just really fell in dramatic ways. Do you happen to see overall mediations picking up in 24 if rates fall or stabilize, whether there be maybe more taxables taxable refundings? That's something we talked about in 22 because there was the huge boom in 20 and 21. I mean, I know it's probably rate driven once again, but yeah,
Peter (11:06):
It is to some degree. I mean when you think about where yields were in 2020 and 2021, issuers should have borrowed all they could for as long as they could, right? To fund a lot of these projects. The infrastructure needs that are so prevalent in the US today, and it is a bit of a head scratcher why they're not. When you look at things like debt service as aversion to taking on debt, federal aid has been utilized I think in some cases to help balance sheets of states and municipalities. But issuance, we continue to talk to issuers and we say, why aren't you issuing more? And part of it is they have two lists. One is a would like to-do list, which means the big grand capital intensive projects. And the other is the need to-do list the maintenance type of projects. And that's really what they're borrowing for.
(11:53):
Debt service is way down. So from that standpoint, balance sheets and credit quality is good, but they should be borrowing more. And my premise is that when you think about what the media market does, whether it be schools or hospitals or bridges or airports or water and sewer, it's all public purpose and there should be a lot more borrowing. And I think what has to happen is there needs to be more incentives created, probably legislatively to get, for instance, insurance companies, pension funds to buy them the low yields because of the taxes and benefit. Sure, they appeal to traditional high net worth investors, but there needs to be a reason to attract those other buyers and therefore we there an increase supply which the market needs. The market needs desperately more supply, I think, to create more liquidity, to create more value. But so far you started your question by saying, what about this year? We don't see a big uptick this year. We're just not seeing that unless something changes dramatically. Taxable tax exempt taxable, as you know, has been going down over the last few years, particularly since we talked in 2022. And there's a lot of reasons for that. It's kind of the relationship OFMs to treasuries and the arbitrage and so forth. But nonetheless, I think that we don't necessarily see that ticking up either. So issuance is probably going to remain muted again this year, and that's not necessarily healthy for the market longer term.
Lynne (13:23):
So when you look at muni yields though, right? They're higher, more compelling than they have been from the previous decade, are they compelling enough? Is this a window of opportunity for investors to get in before the Fed cuts and brings yields down more?
Peter (13:44):
So I think that's another good question. The reason it's a good question is because I think when you take the typical investor and you say, here's a muni bond and it's yielding this, they say that doesn't look that attractive. And because the notion is that rates went up a lot, right? Particularly in 2022 into 2023 rates went up, the fed was aggressive, and you look at what people can get in either cash or the front end of the curve, A lot of people sitting in t-bills, et cetera, and they say, I can get a five plus percent tbi, but my muni bond is only yielding 2% in 10 years. And so I think to answer your question, yes, yields have gone up. There's more income for every dollar invested, but I don't think there's necessarily enough yield to really open buyer's eyes. And it gets back to your question around mutual fund flows, is that creation of value?
(14:36):
What's the reason for investors to come back into the market? The reason, one of the reasons is going to be significantly higher yields, how do we get there? Maybe increased issuance would be one reason. Maybe we have another big credit dislocation disruption. Those tend to be, we're not predicting that by any means, but that's one reason we could see a dislocation. They tend to be temporary and short-lived, but we do need to create more value. There is this, I think, misconception that yields have gone up a lot. I can go out and 10 or 15 years and get a significantly higher yield. It's not necessarily the case. The other aspect is all that money that's going into the SMA space is going into the intermediate category. The intermediate category in municipals is the largest category, whether it's in SMA or whether it's in intermediate mutual funds.
(15:25):
That's where all the assets are. So that part of the curve is particularly rich. And I think oftentimes people say, where can I buy a 10 year muni? And they see the yield and they say, that's really not that attractive. I'm going to stay in cash. Now our argument to that is you have to reduce your reinvestment risk because ultimately, as we've seen with some of the volatility with the market anticipating fed cuts, the market will cut and force rates lower on the front end far before the fed actually begins cutting. So in order to reduce that reinvestment risk, when you're left rates go down and you have to reinvest that TBI or that one year piece of paper, whatever it is, you're buying that in order to reduce that reinvestment risk, you take some money and you move it out to the, we've kind of liked the 15 year part of the curve. You can get 90 to 95% of the income of the entire curve by going out 15 years, taking less duration risk than you would in 30 years. I'm not saying all of it, but a component of it, we think about moving out. So that's to reduce reinvestment risk. But your question around yields is a really, really good one that there is that misconception that I think we still need some dislocation to really attract long-term sustainable flows.
Lynne (16:36):
Is that also somewhat probably how relative value where ratios sit right now? They're very low still. Yeah, very low.
Peter (16:43):
Some would say ugly. Yeah, they're not very attractive. That is true.
Peter (16:49):
But the other thing too is retail doesn't, as you know, retail doesn't buy on ratios. They don't look up and say, what's my ratio today? I'm going to buy this bond or not buy this bond. But it gives you a proxy of the relative value and how sustainable that is. And we've seen other, I think it was the end of 21 before rates really began to go up, we saw ratios that were really now very low, very unattractive, and that was a pretty good signal that something had to change and it did. And I think that's the case now. And I mean for you sitting there, you should be asking me the question, what is that event that's going to occur? I'm not sure. I can't pinpoint that. Maybe it'll be after my retirement, I'm not sure. But there does need to be a dislocation in the market, I think for those ratios to get more attractive and really compel people to come back into the market in a big way.
Lynne (17:38):
So then maybe we should talk about credit. Now, we did talk about that in 2022, and I think to a certain degree there might have been muni credit is fundamentally strong. We had said back then that you agreed and several others that maybe it had peaked, but there still was this federal aid. There was still so much cash on hand issuers, tax revenues were coming in stronger, but the larger problems that exist in muni credited pension funding, just the typical usual suspects in terms of fiscal a house is not in order still sort of exist. And do you think that there's anything coming down the pipeline or pockets of credit concern in the muni space that the markets should be keeping an eye on?
Peter (18:28):
Fundamentally, I think the premise from 2022 that municipal credit is pretty strong still holds true. Maybe the reasons are a little bit different. So we had some of that federal aid which was sitting there unspent. There's still some of that around. I think the economy has been much stronger. So sales tax collections, personal income tax collections have been a lot stronger than anybody anticipated. There's still, generally there's not a lot of spending going on. We talked about issuance. There's not a lot of issuance going on, so they're not increasing their debt service payments as a percentage of their budgets. So there are a bunch of reasons around that. I think there's a couple of holes though that we need to think about. One is around cities and the vacancy rate on commercial real estate and office buildings and retail office space. That's something that I think people are aware of, but they don't really talk about in terms of the market implications.
(19:24):
And that's something that to me has to give at some point in time. And people might argue, well, in New York they have a lot of commercial real estate, but the percentage of their actual revenues that they rely on is fairly small. That to me has to have an impact that some point in time. Now, is that a outright credit blowup? No, I don't think so. I would say no. I think it's more maybe ratings have peaked. We're going to see rating ratings migrate lower. You have to think about things like some of the migration patterns that we've seen post covid. People work differently, they live differently, they move to different places. I mean, there's a lot of that going on that needs to be figured out. So I think you will see kind of a bifurcation and credit going forward. More and more pensions seem to be, they're always going to be there.
(20:14):
That's just the fact they've seen a bit of an uplift from a very healthy stock market more recently. Is that sustainable? Probably not. So I think those unfunded liabilities will probably go up and down. Right now the unfunded portion is fairly low. They may track back up a little bit, but again, I think that sales tax, personal income taxes, we didn't really talk about real estate, but real estate affects more local governments with regards to property tax collections that usually acts with a lag, but that seems like it'll be strong for the next few years. Real estate is still pretty strong. So I think there's enough healthy elements in the market to not have to worry about credit. But as you know, you've been doing this for a while, it's usually the unknown in regards to credit, what comes out of the woodwork all suddenly that dislocates the market. And there's nothing really on our radar right now there. Perhaps in high yield. We've seen a little bit of a tick up in some project finance defaults and so forth, and some smaller issuers. I think that's going to continue to be the case, but I think we've got to look at some of these kind of larger cities or areas that have big exposure to retail and commercial office space that might be a pocket of concern going forward.
Lynne (21:33):
Okay, so everyone's favorite topic or least favorite topic depending on who you ask. We spoke about ESG in 2022. Since then, there's been some fair amount of politicization of it, and we can put the nitty gritty of politics aside, but how do you see sustainability fitting in to the muni market and beyond? Is there still demand for it from investors? Are you seeing how should participants navigate it? Maybe ESG shouldn't even be called ESG. Yeah,
Peter (22:06):
So I actually like that approach ESG, because I don't like the idea of lumping them together. The ESG, I think they're all separate components. The E is one thing, the S is another, the G is another. And when you think about the muni market, there's a lot of relevance to that generally. So let me just come back to that and talk for a second about the demand. I think that's important, and that's one of the reasons we're not seeing a lot of differentiation in market pricing. There's really not a lot of demand at this point in the muni market for E or S or G necessarily. Now, I think part of the problem is a lot of the climate modeling that we see and the impacts of climate change, et cetera, whether you agree or not agree, the models all predict far into the future, in fact, longer than the term of the maturity of most municipal bonds.
(23:00):
So the market's not really assigning a value to that, but at some point the market will begin to need to think about that. The other is when we see these economic disasters and catastrophes and incredibly unfortunate, but the rebuild always seems to give a tremendous uplift to the region. So that's the other thing. I think the market is sort of saying, well, okay, there's always federal aid and the rebuild, et cetera, and that's something to think about. So the demand, we're just not seeing in the market. The market's not really pricing anything even on the S, if you look at the social aspect, whether it be social opportunities, et cetera, or even on the G and the governance, which you think would be a big component of the muni market, we just don't have, not to say without a doubt, I talked before about RIAs and building models, and certainly we do have some advisors who want to build ESG related or aware portfolios.
(23:55):
So there is a bit of demand, but the demand is so small at this point in time that it's just not going to have a factor on pricing. So demand doesn't have a factor on pricing. The timing of some of these components don't have a factor on pricing, so there's no pricing component. You could build a social opportunity impact fund now and not pay any kind of premium for that because there's just no demand. So I think the market over time on the E, the S and the G will evolve ultimately, I think on the E side, probably once we get closer to some of those models really having impact and seeing what some of these impacted areas will actually do. Will they borrow more to build C walls and create better infrastructure to ward off climate change? Maybe, but we don't know yet. The same with social.
(24:48):
Will there be more demand and outcry for we align ourselves with the UN sustainability goals. So for clean water, for healthcare, for education, for that demand may materialize over time, but again, it's not there. And even in the governance side where I mentioned there should be a little bit more awareness, particularly from smaller issuers who don't have a lot of disclosure, et cetera. I think all those things are just slowly, slowly evolving. I probably gave a pretty similar answer in 2022, and I'm not sure, here we are at the beginning of 2024. I'm not sure we've seen huge advancement, at least from a market standpoint in any of those components. So something in five years that matters. I think it'll matter more than today certainly, but not for 2024.
Peter (25:37):
Interesting. Hope that makes sense. It does,
Lynne (25:38):
It does. I think some of the things that we hear from folks is obviously the issuers, they want the pricing differential. Some issuers definitely have, at least anecdotally I've heard that while they maybe haven't seen a yield difference, if they're issuing something plain vanilla or green, their investor pool had broadened for the green or the social
Peter (26:02):
Bond. Yeah, there is a green
Lynne (26:03):
Label. So how do you measure pricing differential? Is it also the demand is a bigger pool of investors? But
Peter (26:09):
That's very fair. Yes. So
Lynne (26:11):
I wonder even think about how international investors are looking at munis, and I think that back in 2021 I heard there's more foreign investment interest in Munis, but that was also because they were taxable,
Peter (26:26):
Right? And it is still there. I mean it is a good point. We do have international investors that do care about the ESG related bonds that get issued, particularly on taxable munis. I don't know if it's growing just because of hedging costs, et cetera, but there's a much greater awareness around the municipal bond market overseas than there was eight or 10 years ago. I think it started a number of years ago. There was good value in the market, but I think they're still very aware and willing to make an investment. And we do have some particularly European clients who want a green related portfolio and are they paying a big premium for it? Probably paying a bit of a premium, but there is a bit of demand that comes from those sources overseas in Asia, they like the infrastructure angle around some of our taxable municipal offerings, et cetera. So there is that element that hopefully will continue to grow. But again, it gets back to my comment around there needs to be an incentive and a reason for a lot of these investors, whether it be domestically or internationally to invest in our market. There's a great need for infrastructure improvements throughout the us. How do you create an incentive for more buyers outside of traditional retail? I think that's key. Whether it's tax subsidies or tax credits or whatever the case may be, there needs to be something that's both simple and cost effective.
Lynne (27:54):
So I would like to pivot to sort of the state of the muni industry. You've been in this business for 35 years. You've seen the ups and downs, but now we have last year UBS first and now city exiting the municipal business. I think we've spoken UBS was surprised, but I think Citi was a much bigger surprise. I guess just what effect does this have overall on the municipal industry? Do you see any potential growth playing out? Who's going to fill the void? Will there be a rebound? How does this affect the buy side?
Peter (28:35):
Yeah, there's
Lynne (28:36):
A lot of questions.
Peter (28:37):
A lot of questions there and all relevant ones I would say. So I started at what was Merrill Lynch Asset Management at the time in 1987, even before that I traded in Boston and Boston had its own big community of sell side banks, et cetera. And they one by one solely either merged or went away. When I started in 87, I think that's when Solomon went away in the mid nineties. It was first Boston. And so these things happen over time. It's how these big firms want to commit capital because we're doing everything obviously besides just municipal. So I think UBS is probably not a big deal. They were trying to make a bigger presence in banking. They hadn't really done a lot on the liquidity trading side, so not much of an impact there. Remember they got out of the business back in, you probably remember better than I do, was it oh 7 0 8 or something like that?
(29:31):
Oh eight. So they never really had got that off the ground. Again, city's a different story. City's probably most buy-side firms. I'd say one of their top three counterparties or have been for a long time. They provided a lot of liquidity. They had a big banking presence. They had a very good team of salespeople, of traders, of underwriters. They were particularly good in high yield. The high yield, we didn't really talk much about high yield, but that's a tough part of the market. Liquidity can be really challenged there. There's not a lot of entities that want to take that kind of risk and own high yield risk or commit the resources to understanding it. Citi did. So they provided a lot of liquidity in that part of the market. I mean, there are others who've done that. So I think in the near term it does hurt a little bit, but also creates opportunity for a lot of these other firms.
(30:24):
The reality is that spreads have just narrowed far too much, and even some of these underwriting fees on new issues are very, very tight. And it's difficult for a firm to take down a large portion of that if they can't clear the market with the amount of money they have left to backstop the risk they're taking. So will spreads get wider? I don't know. We seem to be in this low fee, low spread environment that I don't know again what will change that. But it's not a surprise that a big entity got out just because from a profitability when their CEO looks across the board at the entire bank and where are we going to commit capital and where do we get the biggest return on our investment? They decided with the spreads, it's not necessarily munis. So others will pick up the slack. I think a lot, we've seen a lot of regionalization.
(31:16):
I mean there's some really good firms regionally that are committing capital and growing. And then you have a couple of the big obvious ones that continue to be very, very committed to the market. So I think in the near term, a little bit of a disruption to liquidity longer term, I think it's just healthy, better spreads, better commitment longer term to the asset class. But in general, I would say the industry is in a great place, whether it be buy side or sell side. And I know there's been challenges over time to the tax exemption, but again, it gets back to my comments about the infrastructure needs in the country. What better place to do it than the municipal market access, low cost financing, et cetera. It's a great place to do it. So I think longer term, and we've been able to attract a lot of really young talent into that, our firm, and I think other firms have done the same thing. So I think longer term it's in a very, very good space. The question is going to be this data thing, right? It's like all this data. Munis are kind of a data crazy place when you think about all the data that's available, municipalities, et cetera. So how do we bring in that data and utilize it and become more efficient and create better value for clients? I think that'll be the question.
Lynne (32:32):
A lot of data about how much is good, how much is strong, how do you integrate it into your workflows?
Peter (32:37):
That's the hard part. Yeah. Do you integrate it into the workflow? And more and more you have to pay for data. That's the other thing which used to be out there and readily available is now becoming more and more expensive.
Lynne (32:49):
So you're set to retire. I would love if you could just give us something we don't want to talk about the bad times. What were some of the more rewarding points from your career in this industry?
Peter (33:01):
More rewarding time. I think just, it's funny, you kind of think about these things and I don't think anybody went to college to major in municipal bonds and say, I want to go. As far as I know, they don't have a major in municipals. They should. Yeah, they should. Yeah.
Lynne (33:17):
It's tax dollars at work, right? That's right.
Peter (33:20):
But certainly it's a really important component of I think not public finance, but fixed income markets broadly, generally, and you don't realize it early on. You get into a job and you do it and you kind of do it and you grow and then you sort of realize a, it's a very important industry. It has relevance. I mean you can say what you want about high yields and corporates and other things, but there is a real public element and a real do good element to the municipal market, which I think it's taken me a while to realize that. I think as you get older, you have more appreciation for that. So that's been really beneficial. And it's been just the people I've met, I've known you for a while and other just really, really good people in the industry. You look at some of the charitable events that they do, there's a number of 'em. I mean, they're always there for each other and for people. And then just really proud of my team, the team that we've built, the growth that we've seen over the years, and happy to hand it to the next generation of people who are all just smarter than I am.
Lynne (34:18):
So what do you tell the younger generation coming up, you did mention spreads and how do you get people excited about public finance?
Peter (34:30):
I think so. I would say on the one hand, the way to do that is realize that there are real opportunities in this industry, whether it's on credit research, whether it's trading, whether it's portfolio management, whether it's sales doesn't make a difference. There's a lot of opportunities to make a wonderful career in the municipal bond space, and I think you have to figure out what you like and don't like. There's also a component of the market is a very intuitive market. It's not exchange traded. You can't just look it up on a ticker and see what the value's worth. You have to extrapolate that value through time and experience and take the time to first of all, learn from others who've been doing it for a while and then take the time to learn, but also overlay your own skillset. The people who are coming in have very different skill sets than I had and even people who came after me, a lot of tech skills, they're able to be very efficient.
(35:23):
They're able to look at quantitative comparisons I think a lot more quickly than we were. And then there's the data side. How are we going to use all that data that you talked about? There's a lot of it. How do we utilize it? How do we put it into our workflow and our work stream? How do we cover more credits? We like to talk about the factors. Depending on what index you use, 40,000 or 70,000 or 90,000 and 1,000,001 QIPs. It's a big difficult market to navigate. So nobody can touch all of that. But I think by using data more, you can utilize cover more of the market. I think with less people, more efficiently, uncover more value, become a better buy side, become a better sell side, whatever the case may be. So I think there's a lot of opportunities. The market's changing. Ultimately, ESGI think becomes more important. There's opportunities there for those who are interested in that segment of the market. So there's a lot to do. And I think PE and private equity and things like that seem really sexy and there's certainly big demand for kids coming out of college for that. I think they should give this industry a shot. You can make a really wonderful career, get to know a lot of good people and do well for yourself.
Lynne (36:34):
I would agree. I would agree. It's not going anywhere, right?
Peter (36:37):
It's not going anywhere. It's been around for a while and I think it'll continue to be so the big thing, again, I go back to I wish there was a greater understanding, greater appreciation, I think among legislators in Washington about what the asset class does and what it could do. Will a little bit of thought and creativity to attract pension funds, attract insurance companies, not make it that retail only market.
There's this misperception around that the market is for rich people, and that's not the case. It simply provides retirement income, which is tax-free for people. But I think in order to really grow the market, you have to also attract other types of big institutional buyers. We did that for a while and some of the, think about 2008 taper tantrum in 2013, the Meredith Whitney selloff in 2000 was that 2010, 11, 10, 11. And you get big institutional buyers that come into the market when that value really gets created. But then once the value dissipates and it goes back to a retail driven market, they disappear. And then we get back to that sort of little bit more stagnant market, I think, to make that market generally more exciting, give issuers greater options for financing some of their infrastructure needs, et cetera. I think we just have to attract on a more sustainable basis some of these institutional investors.
Lynne (38:00):
Hey, you said you didn't want to call it an illiquid market, but yeah, it kind of is.
Peter (38:04):
Got to be careful with that. Yeah, I say liquidity at what price. And it's funny, it's illiquid both ways. Sometimes you can't find bonds at a price, right? It's feast or famine. And then sometimes when it gets really bad, it's really hard to sell a bond anywhere close to where they're eval.
Lynne (38:21):
So yeah, more buyers in the space and more bonds. That's what we're looking for in
Peter (38:25)
24 that will be healthy longer term if we can get to that dynamic.
Lynne (38:30):
Peter, is there anything else I didn't ask you or you want to talk about?
Peter (38:33):
I think you asked me a lot of great questions. I always enjoy the interviews and
Lynne (38:37):
It's terrific. Again, thank you for being here and congratulations. Good luck. Thank you very much. And fun in your retirement and travel. Do all the fun things.
Peter (38:45):
Yeah, that's the first order of business is to travel some.
Peter (38:51):
Well, thank you for having me. It's been great.
Lynne (38:52):
Thank you so much. Thank you everybody for tuning in and we'll see you next time. Take care.
