No Time Like the Present for Municipal Analysts

Natalie Cohen has become the latest new hire in the burgeoning market for high-profile municipal research analysts.

Wells Fargo Securities announced earlier this week that Cohen, who founded National Municipal Research Inc., has joined the San Francisco-based investment bank as senior municipal bond research analyst.

Titles like head of municipal research or senior municipal analyst  are appearing more frequently lately.

Wells Fargo Securities’ parent, Wells Fargo & Co., already employs Patrick Early as head of municipal research at Wells Fargo Advisors, providing support for retail, and Terry Goode as head of tax-exempt research on the buy side, at Wells Capital Management.

Cohen will be publishing research pieces on the municipal market “for the greater Wells Fargo Securities community,” a spokeswoman for the company said.

It took George Friedlander less than two months after being laid off from Morgan Stanley Smith Barney to land a job as head of municipal strategy at Citi.

Phil Villaluz, formerly an analyst with Bank of America Merrill Lynch, was named head of municipal strategy at Advisors Asset Management last year — a newly created role at the firm.

“There are jobs available for very good analysts,” said Mark Stockwell, director of muni research at PNC Capital Advisors and the chairman of the National Federation of Municipal Analysts.

Stockwell attributed the renewed push for analysis to three factors: the implosion of the bond insurance industry, the consolidation of sell-side underwriters, and the introduction of municipal products to new buyers through the Build America Bonds program.

The collapse of the bond insurers had a twofold effect: for one, it de-homogenized the municipal market and reminded people that credit risks do lurk in state and local government credit. Second, it sent a lot of analysts who worked at the insurers looking for jobs.

Stockwell said PNC recently had an opening for an analyst, and received many applications from analysts formerly at bond insurers.

Perhaps the clearest example of this is Thomas McLaughlin, the former chief executive officer of National Public Finance Guarantee Corp. who joined UBS Wealth Management last month as the head of muni finance research.

Another instance is Chris Mauro, who left Financial Guaranty Insurance Co. to become director of municipal research at RBC Capital Markets in January.

A series of articles in the mainstream press predicting a meltdown in state and local government credit has underscored the need for fundamental research, according to Mauro.

“Thanks to all of the attention the national media has given to our market in recent months, I think it would be hard to justify participating in the muni market in any significant way without having some in-house credit research,” he said

Mauro said he believes most new municipal analysis positions are being created at small-money management firms, though he sees “modest” expansion on the sell side as well.

Eaton Vance recently hired two new muni analysts, and Mitchell Savader, who runs an independent research firm with about a dozen analysts, said he plans to soon start hiring more.

Richard Ciccarone, chief research officer at McDonnell Investment Management, said when he got his start in the business more than 30 years ago much of the research came from underwriters.

While analysts at dealers still put out a good deal of research — such as Mauro and Bank of America Merrill Lynch’s John Hallacy — the sources of research are more varied today.

Ciccarone said the global settlement in 2003 between investment banks and a variety of regulators — which split underwriting operations at investment banks from analysis — and the growth of municipal bond mutual funds in the late 1980s and early 1990s, encouraged a migration away from sell-side research.

Ciccarone runs Merritt Research Services, a database tracking and sorting information in municipalities’ financial statements.

Interest in the database has picked up in the last few years, Ciccarone said, as people remembered the need for fundamental analysis in the aftermath of the bond insurance collapse.

The heightened demand is not an unmitigated positive: Ciccarone now faces more competition from Bloomberg LP, as well as from a new firm, RangeMark, which is marketing a database of analytical tools for munis.

“The clients are much more willing to pay for the research services they need because of the uncertainty over municipal credit risk,” Savader said. “That’s why we’ve seen so much more interest and willingness to pay over the past year. We’ve probably doubled our client base because of the sense that credit research is something that needs to be taken seriously.”

He said the greatest increases in clients lately for his firm, Savader Asset ­Advisors, are coming from private wealth management firms, community banks, insurance companies, and some of the types of non-traditional buyers BABs are designed to appeal to, such as pension funds.

“What we’re seeing is a much greater interest in municipal credit research from investors who historically have invested in taxable bonds,” Savader said.

Matt Fabian, managing director at the independent municipal advisory firm Municipal Market Advisors, also reports that demand for subscriptions “has been very strong.”

The issue with muni credit research, Fabian said, is that it is expensive.

“The market’s heterogeneity and poor disclosure make systematizing the ­bond-by-bond research function nearly ­impossible,” he said. “So you need ­experienced analysts, like Natalie, who adopt a more artisanal, hand-crafted ­approach.”

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