Princeton University, a New Jersey conduit issuer and two municipal bond firms hope their collaborative $430 million deal earlier in the year could foster more diverse participation in higher education bond transactions.
“We’re hopeful that this template serves as an example to others, for not only this type of business, but broad participation across the MWBE [women and minority business enterprise] space as far as asset management,” Tim Graf, the university’s associate vice president for treasury services, said on a New Jersey Educational Facilities Authority webcast.
The university and the authority appointed certified minority business enterprise Ramirez Asset Management as a subadvisor on the proceeds of the university’s Series 2021B and 2021C bonds, which sold competitively in April.
The appointment marks the first time the 54-year-old authority has collaborated with an investment manager — PFM Asset Management — and a client to ensure that a minority, woman or veteran-owned firm invests and manages bond proceeds.
It also represented the authority’s largest transaction, exceeding its Princeton Series 2017-I issue of $357 million.
“We’re going to pitch this idea to other institutions that we speak with,” said Eric Brophy, the authority’s executive director.
Challenges still await diverse asset managers, according to James Haddon, Ramirez Asset Management’s head of marketing. He cited studies showing that diverse firms manage about less than 2% of the roughly $15 trillion to $17 trillion of assets available for management.
“It’s a low number, but there is a significant number of diverse firms out there who are well-established and are doing well and are putting up great numbers,” he said.
“The question is, why haven’t we seen more of the industry move to hiring or changing that 1% or 2% usage of diverse asset managers? We have a long way to go and a lot of things that we can do.”
Princeton president Christopher Eisgruber last year established a goal of diversifying its external investment managers.
Stephen Faber, a managing director in PFM’s Princeton office, said his firm and the university went through a “pretty rigorous” process.
“The university challenged us with questions about, you know, will the subadvisor accept fiduciary responsibility? The answer is yes. What are the roles of the primary and the sub? Who has reporting responsibilities, is it solely PFM or is it both?”
Faber said PFM came up with five short-list firms and recommended Ramirez “given the particulars of this situation and knowing that Princeton knew Ramirez.”
Bond proceeds will fund, in part, new residential colleges and infrastructure projects on Princeton’s campuses, including its main one off Nassau Street in the center of town.
“If anyone’s been on our [main] campus recently, you can see there are a lot of piles of dirt and a lot of foundations being laid, and we were grateful that the capital markets and the NJEFA were helpful in that regard,” Graf said.
Haddon said the "bigger is better" perception still poses headwinds to niche firms.
"There is this sort of implicit bias if you will, that, ‘Well if we select the firm that has hundreds of millions of dollars of assets, we can’t be criticized,’ as opposed to choosing to go with a smaller firm," he said. "Our performance would qualify us to match up with any large firm. We’re institutional ready.”
Ramirez, he said, touts its investment style.
“We benefit from being smaller, and we can find opportunities relative to value in the high-grade, fixed-income market that a larger firm just can’t partake in because they can’t find the right size positions that would make an impact on their portfolio.
“We promote that when we go out and talk to people.”
