Samson's Credit Focus Yields a Decade of Growth

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Samson Capital Advisors LLC, a New York-based global fixed-income investment management boutique, has tripled its assets under management in the past decade, as demand surged for wealth management advice.

Assets under management have grown to $7.4 billion from $2.4 billion at the end of its first year of business in 2004, and municipals represent more than 80% of those client assets, according to Benjamin S. Thompson, the firm's chief executive officer and Scott D. Einhorn, director of marketing.

Samson's founders said the firm has led investors through challenging market periods by relying on the conservative wealth preservation and credit research strategies on which the firm was founded, amid increasing market and economic volatility.

"The tension heightened individual investors' concerns and focused their attention on municipals like never before," Thompson said in a phone interview with The Bond Buyer last week.

Those conservative management philosophies have proved to be successful for high net worth clientele looking to protect their fixed-income investments and minimize duration, credit, and liquidity risk, Thompson and Einhorn said.

"The need for sophisticated advice has grown," Thompson added, reflecting on the 2007 credit and liquidity crunch after the housing market collapsed and the sub-prime mortgage lending bubble popped.

The global asset management industry last year recorded its strongest year of growth since before the financial crisis, as total assets rose to a record $68.7 trillion, according to Boston Consulting Group's 12th annual Global Asset Management report released earlier this month.

In North America, which includes the United States and Canada, assets under management at wealth management firms grew to $34 trillion in 2013 from $27.3 trillion in 2007.

Michael Pietronico, chief executive officer at Miller Tabak Asset Management, said Samson's reputation, as well as the close-knit client relationships created by smaller buy-side money managers aided the firm's growth.

"Investors in large firms get lost sometimes, while smaller firms do a better job of communicating with their clients," Pietronico said.

While there has been growth over the last 10 years in the separately-managed account industry, buy-side advisory firms had to be diligent to succeed in a competitive industry, in which high net worth investors seek credit analysis and overall portfolio management, said Richard Ciccarone, president and chief executive officer of Merritt Research Services LLC.

"The challenge for separate account managers is holding their own fees and expenses low enough to maintain profit margins given the protracted period of relatively low interest rates that the bond market has been experiencing," Ciccarone said.

In a 2005 interview, after the firm's one-year anniversary, Einhorn said the firm's main focus was on quality, not quantity. The founders sought to bring Wall Street to Main Street through a customized approach to client's investment needs.

That strategy worked, and the firm continues to acquire new relationships through networking, referrals, and a corps of financial advisors across the country, the founders and managing principals said.

The firm currently has a client base in 44 of the 50 states, with New York and California representing 30% and 20% of the clientele, respectively, according to Einhorn.

Its growth also includes 446 client relationships, compared with the 147 it began with a decade ago. The staff has grown to include three traders and six portfolio managers, up from one and five, respectively, Einhorn said.

But the growth was not without struggles. Low interest rates, the historic volatility in 2013, and a steep yield curve, are among the chief obstacles that Samson combatted over the last 10 years, Thompson said.

"It heightened the need for the education of clients," he said. "The visceral rejection of lower interest rates can be a hurdle," but "concerns over low rates can be managed with education and expectations of risk."

Thompson advises fixed income investors to build portfolios with reasonable objectives and to align their return expectations with their risk tolerance. Potential risks should be understood - but not overstated, he said.

"The real risk in a fixed-income portfolio is measured by duration, and managed and understood in terms of a time horizon," he said. "As your horizon expands, your tolerance for risk increases."

With the elimination of triple-A-rated bond insurance following the financial downturn, the tax-exempt market offered broader opportunities, yet investors grew more cautious. It was then that Samson's focus on credit quality proved invaluable, the principals said.

"2005 wasn't as exciting to people because bond insurance was triple-A, and that negated the need for additional credit analysis," Thompson said. "The A-rated sector was broadly insured - and wasn't as accessible and interesting to investors" pre-crisis, he said.

Today, Thompson said, "the muni market without bond insurance gives a more interesting perspective, with a wider range of sectors and credit quality than the bond insurance era."

"Muni bond portfolios have a wider range of opportunity," added Thompson. He said the firm may also selectively consider triple-B and single-A credits for its tax-efficient strategies based on clients' risk tolerance and investment objectives.

The firm favors high-quality state and local general obligation and appropriation-backed bonds, as well as essential service water and sewer and power revenue bonds, and transportation, public higher education and state housing credits.

Using its conservative approach and intense focus on credit surveillance proved especially critical in recent years - from the 2007 financial crisis to today's Detroit and Puerto Rico debacles, Thompson said.

"The financial crisis was important because the complexity of the market has changed so much - especially with the loss of insurance companies," Thompson explained. "You can't lump all munis into one basket."

He said it was the firm's thorough credit research and analysis provided by its team of seasoned professionals — portfolio managers, traders, research experts, and credit and quantitative analysts - that provided a wide range of insight to clients amid periods of market turmoil.

That helped clients understand and differentiate between credits with contrasting economics, he noted.

"The marketplace changed, but we stayed committed to our wealth preservation strategy," Thompson added.

"Our underlying credit research paid off in terms of performance, and credit quality was a big part of that," Einhorn said.

In fact, Samson's conservative, credit surveillance kept its clients free from exposure to Detroit and Puerto Rico debt, Thompson noted.

"We have had pre-refunded bonds, but have never been comfortable with the risks of Puerto Rico," he said. The same is true for Detroit.

"Staying true to credit discipline avoided many places with troubled economies for a long time.That's the reputation we built," Thompson said

"Other managers thought the yield was worth it, but to us, they didn't meet our parameters," Einhorn added.

Samson recently added new approaches to its existing product lineup of tax-efficient fixed-income and taxable fixed-income options, including a proprietary strategy to invest in closed-end municipal bond funds in dedicated client portfolios.

Going forward, the consistent execution of current strategies and expansion of tax-efficient and taxable bond offerings are what will propel the firm to the next milestone, according to Thompson and Einhorn, who share the helm of the firm with Carolyn N. Dolan and Jonathan E. Lewis, also managing principals and founders. Lewis is also the chief investment officer.

"We want to provide the services that are consistent with our investment approach," Einhorn said.

"The products have broadened, the marketplace has changed and has given us opportunity," Thompson said, "but the core philosophy is the same."

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