Portfolio Manager Profile: Additional $246 Million Is Icing On the Cake

Kevin Klingert can probably take in stride the extra $246 million of bank-run municipal bond funds he just inherited.

The 33-year-old managing director at New York City-based BlackRock Financial Management Inc. already oversees $6 billion worth of municipals along with a team of three other portfolio managers.

Now the Compass funds - a set of portfolios acquired by BlackRock's parent PNC in a merger - have been added to the Klingert team's domain.

Together, the team runs a mix of accounts that includes $3 billion in 11 closed-end funds, $1.4 billion in eight common trust funds at PNC Bank Corp., $1.5 billion for seven property and casualty insurance companies, and a smattering of high-net-worth accounts.

Despite the wide selection of accounts, Klingert said there are more similarities than differences.

"Amazingly enough, although the funds from institutional to common trust to mutual funds sound like a lot of different types of funds, the strategies aren't all that different," he said.

The four newly inherited funds, which Midlantic National Bank ran before it merged with BlackRock's parent PNC Bank, are retaining the name of Compass Capital.

However, keeping the same name has not prevented Klingert from initiating some changes.

On Jan. 11, the Compass funds absorbed PNC's Provident Funds Group.

Streamlining Structures

In the next few months, Klingert plans to streamline the portfolios by simplifying the funds' structures.

Currently, the funds are filled with a jumble of odd-lot bonds. One fund contains more than 300 different bond issues.

"We do have an eye on diversification, but there is such a thing as too much diversification," he said.

Klingert said he wants the funds to own fewer names, saying that keeping track of so many line items is a strain on his portfolio managers.

"You must have simplification for ease of management, and you can change the portfolio over quicker for changing market conditions," he said.

He also plans to sell many of the funds' five- to 10-year par bonds for premium bonds because he is afraid interest rates are bottoming out.

"We're not interest rate timers, but you can't ignore what's happening in the interest rate marketplace and here we are at close to the lowest rates in two decades," he said.

"We sold a lot of the market discounts recently and replaced them with premiums," he added.

As a result, much of the Compass funds' return will come from income this year, he said.

The average duration on the funds range from 7.59 years on the national fund to 6.92 years on the New Jersey fund.

Total Return and Income

Klingert believes total return and income are both equally important, and does not focus on one to the exclusion of the other.

"It's sometimes a bit of a competition between which priority you prefer to focus on but that's what you get paid for, to make those decisions," he said.

Other than restructuring the new Compass funds, which include one national fund and three state funds concentrating on Ohio, New Jersey and Pennsylvania, Klingert is expanding BlackRock's assets under management in the municipal common trust and property and casualty insurance company areas.

Those are the two strongest growth sectors for the firm at the moment, he said.

By contrast, closed-end funds - BlackRock's traditional strength - are not growing at all right now, he said.