WALNUT CREEK, Calif. — When Douglas Montague entered the financial adviser sector he had a clear vision statement.
He launched his business in 1995, with a news release stating plans to “carefully build a California franchise based on deep coverage of a limited number of accounts.” As its 15th anniversary approaches, the approach of Montague, DeRose and Associates LLC hasn’t changed — though the size of the business has.
In a recent interview at their Northern California office here, Montague and the firm’s two other principals, Jim Bemis and Frank Perdue, say the original game plan still works.
Montague founded the business in 1995 as a principal — and the first and only California adviser — with Nevada-based Howarth Montague and Associates.
The firm soon separated from its Nevada side and took on its current identity when Darlene Cimino-DeRose joined in 1998. (She retired in 2009.) It now has more than a dozen employees, split between Northern and Southern California offices.
Montague, a veteran investment banker, moved into financial advisory work after his employer, CS First Boston, abandoned the municipal bond business in 1995.
“Rather than making a lateral move, I decided there was this need in the financial advisory business for investment-bank-quality work in the FA space,” he said.
The focus remains on serving larger, sophisticated issuers that include the San Francisco Public Utilities Commission, the East Bay Municipal Utility District, and the state governments of Washington and California.
Bemis joined the firm in 1999, bringing experience with local government, investment banking, and as a credit enhancement specialist with firms like The Sumitomo Trust & Banking Co.
Perdue, who has an extensive background in energy and utilities, joined the firm in 2007, after working closely with the firm through his former employer, Navigant Consulting Inc., to help structure and manage the landmark California Department of Water Resources power revenue bond deals of 2002, in which $11.3 billion in debt was issued.
All three principals say their clients had to make major adjustments in the wake of dramatic industry shifts in recent years, including the demise of most bond insurers, the arrival of Build America Bonds, and turmoil in the variable-rate debt markets.
“The main thing I see is there’s such a heightened emphasis on credit that wasn’t there before,” Bemis said. “Bond insurance made everyone’s job easier; now with the demise of bond insurers credit is really emphasized.”
Bemis believes the variable-rate market has a future; at present, low rates are helping mitigate for the high cost of liquidity.
“Capacity is coming back; some of the banks that were out are re-entering,” he said. “I don’t think it’ll be back to the heyday of 10-basis-point liquidity.”
Montague said that the cost of liquidity remains a problem.
“They [liquidity providers] run a risk, if they keep them too high, of killing the golden goose, because it’s going to result in a move away from variable-rate product which in turn will reduce demand for the product,” he said.
Perdue, on the utility side, is helping clients deal with burgeoning renewable portfolio standards, which effectively demand they invest in wind and solar projects.
“Our Pacific Northwest clients have to think deeply about that,” he said. “The balancing act is to make sure their loads and resources match, so that they don’t have too much capacity.”
Montague said it’s all in keeping with the vision he had when he entered the FA business.
“I don’t think we feel compelled to deviate much from the plan,” he said. “I really feel we’ve grown slowly and carefully and every person’s been hand-picked for their fit in our culture and skill set.”