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 separately managed account strategy.
"I think this is the wave of the future in terms of how to manage high-yield munis," Black said of separately 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 have been trying 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 lots of experience in high yield. It was a no-brainer to call Bill."
Based in Chicago, Black's career 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 same title at Van Kampen Investments where he started in 1998 and worked for more than 12 years.
SMAs, a portfolio of individual securities owned by one investor and managed by a professional asset manager, have seen
But nearly all of these are high-grade muni SMAs, as SMAs that invest in junk-level or unrated credits are few and far between.
That's partly "just the nature of how many high-yield municipal portfolio managers there are out there," Black said. Although there are some "great portfolio managers with large funds" in the market, "this is going to be much more hands on, something I'm much more willing to do than other portfolio managers may be interested in," he said. "You need the right investors, the right team and the right portfolio manager."
One of the benefits of an SMA is that it allows managers to buck outflow cycles that pressure mutual funds to sell to keep up with redemptions, he said.
"What's great about SMAs versus a fund, from my standpoint, is that you're going to have longer-term investors who want to stay in the bonds and hold them," Black said. "The whole redemption and flow issues that mutual funds and ETFs have, where they're forced to buy and sell when everyone else is — we'll be the reverse," he said. "We're going to be the buyers."
Saybrook plans to source bonds from both the primary market — looking at speculative deals from nontraditional broker-dealers — and secondary markets, where "it's about relationships," Black said.
"It's great to have a really good deep staff that really understands distress because it allows us to dig into deals that others may want to pass on," he said.
The firm will be looking for opportunities in sectors like senior living, land-backed deals, and higher education.
"We don't care about headline risk and our mandate is very flexible," Schotz said. When it comes to idiosyncratic and deeply distressed credits, "We don't mind putting in that money as long as we get a return on it and hopefully control the situation."
The growth of SMAs and ETFs marks one of the big trends that Black has noted over his decades-long career in the bespoke speculative muni bond space.
The
"Liquidity seems pretty good in high-yield munis right now and it is until we get one of these redemptions and everyone is selling," Black said. "That's going to be an opportunity for us but it's going to be a real test for the market overall."
Jessica Lerner contributed to this report
