Vincent Giordano has joined Claymore Group -- a new firm that provides investment product distribution and servicing to brokerage firms -- to launch asset management operations, following his departure from Merrill Lynch Investment Management last year.
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Giordano, who was made a senior managing partner at Claymore, had overseen the launching of Merrill Lynch's municipal bond mutual fund group in the late 1970s. He will head Claymore Investment Management in Princeton, N.J., which is a subsidiary of the Wheaton, Ill.-based firm.
His departure from Merrill in March 2002 followed the appointment of Robert C. Doll as president in late 2001. Giordano said he left due to a disagreement with Doll over the direction the firm was moving. Doll had joined the firm as a chief investment officer in 1999, and his primary focus has been to "consolidate and rationalize" the firm's overall mutual fund lineup, said Dan Culloton, an analyst at Morningstar Inc.
Such consolidation has drastically reduced the number of closed-end municipal funds run by the firm from as many as 55 at one point in 2000 to just 31 the following year.
During Giordano's tenure, MLIM's muni funds grew to about $50 billion, ranking among the industry's largest. He had overseen the creation of $14 billion in closed-end muni funds. These funds in particular have been boons to investment management firms because investors trade their shares over stock exchanges rather than redeeming them. So regardless of their popularity level, the funds continually produce management fees.
As the spread between short- and long-term interest rates has widened in recent years, leveraging the funds has become more profitable. That has led a small handful of firms to raise more than $13 billion in combined assets through the launching of new funds, according to estimates.
But missing from the list of firms launching new funds has been Merrill Lynch, which had previously been a dominant player in the closed-end fund initial public offering market during past favorable-interest rate environments.
That may have something to do with changes Doll has implemented at the firm, leading to less emphasis on launching new products and more focus on the "thesis" behind the investment, according to Culloton.
Critics contend that leveraged closed-end funds will be doomed when interest rates rise -- a scenario many consider likely given their current low levels. Because the funds' net asset values are calculated on the assumption that borrowed assets must be paid back in full at some future date, their losses are magnified when bond prices fall.
"We would rather see fund shops stick to their core competencies and not just be rolling out new products to gather new assets because the market seems favorable," Culloton said. "From an investor standpoint, that's always the wrong time to get into a new product."
But during a panel discussion on portfolio management in New York on Wednesday, Giordano said he believes investors want fixed-income products.
"There is approximately $5 trillion sitting in liquid assets throughout the United States," Giordano said. In the municipal bond market alone, there is about $300 billion sitting in money market funds that are yielding just 1%, he added.
"I think there's enormous opportunities for asset management firms," he said.
Officials at Claymore could not comment on specific plans yet. But the firm is considering defined portfolios, mutual funds, separately managed accounts, and closed-end funds, according to Gregory Drake, a vice president in business development. Giordano said the lineup of products will include at least one municipal bond fund.
