Herbert J. Sims, one of the oldest municipal bond underwriters, has acquired Braintree Capital Partners in its effort to expand into the investment management business.
Braintree — based in Braintree, Mass., and founded in 2008 — will operate as a wholly-owned subsidiary of HJ Sims and continue to manage tax-exempt portfolios for its own clients. The firm focuses on investing in high-yield municipals and seeks long-term stability of tax-exempt income by being credit-driven.
“Because we deal in higher-yielding municipals, we hit the radar screen at Sims because they deal with high-yield munis,” said Arthur Wunder, chief investment officer at Braintree. “It was obvious that we dovetailed nicely as it was our understanding they wanted to grow their investment management business and we both occupy the same space of high-yield munis. We thought we’d make a good fit with them to offer our services to their clients.”
He said both Sims and Braintree strongly believe in income investing. “We share the same philosophy of the importance of income and income investing. In that regard, we share the same vision of what’s important to clients,” Wunder said.
“Braintree is clearly part of the strategy that involves expanding based on our clients needs,” said Dan Mullane, managing principal at Sims. “We work with clients to invest in ways that will finance their living needs. We are focused on income — especially in the past two years. Our clients have individual bond portfolios with us where they have gained an advantage through premium yields and compounding. Income investments should be the foundation of everyone’s portfolio where yield and compounding through reinvesting lead to more consistent, risk-adjusted returns over time.”
Braintree is an ideal complement to that theory, Mullane added. “Braintree is now a diversified portfolio of essential public purpose bonds with a very significant yield for clients that they can reinvest or choose to take income and thus finance their chosen lifestyle,” he said.
As a wholly-owned subsidiary, Braintree will keep its clients, and Sims said many of its clients may be attracted to Braintree’s strategy. HJ Sims, based in Fairfield, Conn., has two other main offices in New Jersey and Florida. Wunder and Gayl Mileszko, chief operating officer at Braintree, will remain in Massachusetts.
Mileszko will continue to focus on credit research and determining which sectors of bonds the firm wants to purchase. “We stick to what we can comfortably label as revenue bonds, some of which are water and sewer, roads, hospitals and senior living,” Wunder said.
Its focus on higher-yielding bonds has been advantageous in a time of record low yields across the spectrum. But even high-yield spreads have started to compress, making opportunities few and far between. “It’s no secret there are fewer opportunities now than there were a year ago,” Wunder said. “We were fortunate to have cash to spend back then and we spent it. And, like other investors, we held our breath and, thank goodness, it worked out.”
With yields near record lows — especially on the short-end of the curve — Braintree focuses on holding bonds on the longer end. “Generally speaking we are in the longer end of the market between 20 and 30 years.”
Sims is not actively looking to make further acquisitions, but will do so if the opportunity comes. “We are sticking to our knitting,” Mullane said. “To the extent there are opportunities to complement in the way we have done with Braintree, we will take a close look.”
Sims has expanded recently. The firm opened new offices in Minneapolis, where it added four brokers and a banker, giving it a strong Midwest presence. The firm added seven new advisors in its Florida office and two in its New Jersey location.
Sims, with $1.6 billion in assets under management in its investment arm, was the lead book-runner on eight deals, with a par amount of $100.8 million in 2011. It ranked 87th in the country.