Headquartered in Minneapolis, Piper Jaffray Inc. operates 72 branch offices in 17 Midwest, Mountain, Southwest, and Pacific Coast states.
While there was a slight drop-off in bond sales in many parts of the country during 1995 - largely due to declining interest rates and apprehensions about a potential flat-tax - Piper's clients continued to invest in municipals, according to the firm's retail managers.
Part of the reason for this is the general make-up of Piper's retail municipal client base, they said. Most of Piper's individual municipal bond buyers are over 40, and use municipals as a way to achieve balance and manage risk in their portfolios.
Analysts at the firm are predicting a healthy municipal market for 1996, due partly to the expectation that the demand for municipal bonds should exceed the supply of new issues, and partly to the likely failure of the flat-tax proposals.
Ronald Reuss, Senior Vice President and Chief Economist
Ronald Reuss plays a dual role in Piper Capital Management's municipal bond business - which he says gives him a broad-based understanding of the challenges the municipal bond market faces.
"I really hold a double position," Reuss said. "I'm head of the tax- free municipal bond area, and I'm also the chief economist for the firm."
However, because of the recent talk about tax reform in Washington and the potential impact of such an overhaul on the financial markets, Reuss has been focusing more of his efforts on the economic side of things recently, in both the taxable and tax-exempt markets, he said.
"Because of all the complications, I'm probably spending 70% of my time trying to determine the overall direction we're going to be headed in terms of fixed-income and equity," Reuss said.
As for the outlook for the municipal bond market in 1996, the possibility of a rally is very likely, partly due to the simple laws of supply and demand, Reuss said.
"We're estimating about $155 billion of supply. But we're also looking at about $170 billion of bonds being taken out of the market," he said. "So the outlook for the municipal market should be very positive. Demand should exceed supply."
When you factor in the growing sentiment among many market experts that the tax reform proposals are likely to fall by the wayside, the result can only be a very healthy municipal market, he said.
"We've been telling our customer base that we think municipal bonds represent a very attractive buy at this time, weighing and balancing all the risks," Reuss said.
"We think that once the air is cleared (about tax reform) you'll have more demand than you have supply, and that'll put the municipal market performing even better than the treasury market."
Professional:
1986 - Present, Senior Vice President and Chief Economist, Piper Capital Management
1976 to 1986, Marquette Capital Management
1973 to 1976, Merrill Lynch & Co.
1967 to 1973, AmeriTrust Bank
Education:
M.A. in Economics, Cleveland State University, 1982
B.A. in Business Finance, John Carroll University, 1962
Michael J. Cebuhar, Managing Director-Investments, Assistant Branch Manager
Most of Michael J. Cebuhar's retail clients use municipals and other tax exempt fixed-income securities as a means of achieving balance and managing risk in their portfolios.
Cebuhar, managing director-investments and assistant branch manager in the Quad Cities, Iowa office of Piper Jaffray Inc., specializes in selling both taxable and tax-exempt securities.
His clients - who are typically in the 40-plus age group - have a wide range of needs, he said.
While there is no type of security that is common to all his clients, most of them use the tax-exemption and fixed-income features as part of their overall investment strategies, Cebuhar said.
"They work at building a balanced portfolio," he said. "For the ones in the 40-year-plus range, last year was especially attractive for zero-coupon bonds because they're still working, and it's appreciating for them, tax free. They're not looking to trade the market, but to build a portfolio."
Investors use municipals and other tax-exempt fixed-income securities as a way to manage risk in their portfolios, Cebuhar said.
"(Investing in tax free municipals) gives a cushion to the portfolio and adds stability," he said.
Higher yielding but more volatile equities typically comprise the remainder of the portfolios, Cebuhar said, noting that the proportions vary.
"It really would depend on the individual and the amount of risk that they want to assume," he said.
Even though there was noteworthy performance in the equity markets in 1995, Cebuhar said his clients continued to buy municipals, because the municipal market also had a good year.
"It stayed pretty stable because the bond market, although it did not perform anywhere near what the stock market did, also had a very nice return," he said.
As for 1996, Cebuhar expects more of the same.
"I don't see an awful lot of changes for the rest of 1996 as far as dramatic yield jumps or drops from here," he said.
Professional:
1983 - Present, Managing Director-Investments, Piper Capital Management
1981 to 1983, Vice President-Investments, Piper Jaffray
1973 to 1981, Vice President, Blunt Ellis & Loewi
Education:
B.S. in Finance, Drake University, 1972
David P. Sirianni, Managing Director, Retail Municipal Trading and Underwriting
The current atmosphere of flat-tax induced uncertainty in the municipal market could be creating a golden opportunity for investors who recognize it for what it is: just talk, said David P. Sirianni, managing director in charge of retail municipal trading and underwriting at Piper Jaffray Inc..
"It really doesn't matter what I think," Sirianni said. "What matters is the general investing public's perception. And that's fueled largely by what's written in the press and what's spoken on TV. It has very little to do with fact and reality - it has to do with the marketplace's perception."
And the general perception is that the viability of the municipal market is at risk, which has depressed the price of munis and created an opportunity for intrepid investors, he noted.
"I think it's going to create a tremendous buying opportunity for people who recognize the difference between the marketplace's perception and the reality," he said.
Sirianni's role as head of both the underwriting and the trading desk keeps him up to date on what's happening in both the primary and the secondary markets, which he said is essential to be an effective market player.
"It's pretty hard to price a new issue in a vacuum unless you know what's out there against you in the secondary market.
"Likewise, its very difficult to trade the secondary with any degree of effectiveness if you don't know what's going on where new issues are getting priced.
"So by keeping a hand in both, we feel it makes us more effective in both those aspects of our job."
As for Piper's inventory, "We've tended to shorten up the bulk of what we own and offer and focus more on new issues where there are more bonds on the short end in response to retail's demands," Sirianni said.
Professional:
1987 to Present, Piper Jaffray Inc.
Education:
B.A. in International Studies, University of St. Thomas, 1987
G. Scott Vaughn, Managing Director, Fixed-Income Investments
G. Scott Vaughn's 140 retail clients are pretty predictable when it comes to what kind of securities they're going to buy, despite what's been happening in the various capital markets.
"Most of the people I deal with still want to have a certain portion (of their portfolio) invested in bonds, regardless of the interest rate environment or the stock market environment," said Vaughn, managing director of fixed-income investments at Piper Jaffray Inc.
Many of Vaughn's clients are high-net-worth individuals - with a few exceptions - who use fixed-income securities as a means of ensuring a stream of income for their retirements, he said.
"They started buying bonds when they were in their 40s, with anticipation of retiring at around 60 or 65," Vaughn said.
"A few years ago, I had a fellow who retired and took all his money out of his pension," he continued. "He put $300,000 in a managed equity account, and then he took $300,000 and bought 25 blocks of Minnesota municipals, trying to get A-rated or better and 7%. His idea was to have about $20,000 tax-free a year, and that's what we did."
While municipals are a relatively safe and stable investment which lend themselves to this kind of financial planning, changes in the market climate can necessitate a change in plans, Vaughn said.
In the case of the investor who bought $300,000 of Minnesota municipals yielding about 7%, declining interest rates prompted many refundings in 1995 which ultimately resulted in lower interest earnings for the investor, Vaughn said.
"We've had some bonds called, and we're looking at 5 #1/2%," he said.
Other investors favor municipals because they can use them as part of a laddered investment strategy, Vaughn said.
"They want some bonds maturing in one or two years or less, and on out to 20 years," he said, noting that having bonds maturing at regular intervals always leaves them with money to re-invest and protects them from fluctuating interest rates.
Professional:
1994 - Present, Managing Director, Investments, Piper Jaffray Inc.
1989 to 1994, Kidder, Peabody & Co.
1968 to 1989, PaineWebber Inc.
Education:
B.A. in English, Lawrence University
