WEALTH MANAGEMENT - Custom Fit

Fixed-income boutiques are courting high-net-worth clients with personalized portfolios and a “small is beautiful” ethos.

Small fixed-income money managers are hoping the credit crunch will be good news for them as nervous investors retreat from stocks and increase their bond allocations. These boutique firms are using their size and attention to customer service as selling points over their bigger rivals in the current market turmoil.

Matt Bienfang, a wealth management research analyst at Needham, Massachusetts–based Tower Group, a financial research and advisory firm, says that’s an appealing pitch right now.

“In a market like today’s, these boutiques can offer the end customer more customization and service,” he notes. But although some fixed-income boutiques say they have seen their capital inflows pick up lately, there hasn’t been an enormous flight to bespoke fixed-income management — not yet, anyway.

Carolyn Dolan, a principal and co-founder of New York’s Samson Capital Advisors, which actively manages $4 billion in assets (up from $3.2 billion in 2007), says what her firm offers that the big guys don’t is highly personalized customer service and attention to detail. She says Samson’s portfolios don’t come off the shelf, and the firm’s high-net-worth and institutional clients have no trouble getting Samson portfolio managers on the phone. At a typical large firm, she says, those calls are taken by relationship managers. “You have someone with a $50 million bond account not being able to talk to the person managing their assets,” she notes.

Samson principal Scott Einhorn says he has recently been asked by prospective clients to evaluate scores of municipal bond portfolios managed by other firms. (He declines to identify which ones.) “People are reevaluating risk, and the fixed-income asset class is becoming more important overall. More investors have been looking for assistance in managing the risks of their fixed-income portfolios,” he says.

Samson was founded in 2004 by Dolan, a co-founder of Offitbank; Roy Zuckerberg, a former vice chairman and head of the equities division of Goldman, Sachs & Co.; and executives from JPMorgan Fleming Asset & Wealth Management and other firms. Samson offers, among other services, active management of municipal bond portfolios and tax-efficient inflation protection and multiple-currency investment strategies. Samson’s Multicurrency Plus Strategy returned 12.69 percent net of fees for 2007, compared with its benchmark, the inverse of the U.S. dollar index, which returned 9.08 percent. Through the end of February 2008, the strategy returned 5.69 percent net of fees versus the index’s 4.05 percent.

TowerGroup’s Bienfang says boutiques have become attractive to advisers trying to differentiate themselves. Todd Whitenack, a director at New York–based, $3.6 billion wealth manager BBR Partners, which has more than $100 million invested with Samson, says, “In times like these it’s important to use active managers.” He says BBR’s clients are considering investing in Samson’s short-term strategies in auction-rate preferred securities and variable-rate demand notes. BBR also is interested in Samson’s inflation-protected municipal accounts. “They’re more cutting-edge than most folks,” says Whitenack. “You wouldn’t get that at the big shops. Or you would get it a year too late.”

Other boutique fixed-income shops hoping to take advantage of the credit crisis include New York’s Wasmer, Schroeder & Co., which has $2 billion in assets, and Boston-based Breckinridge Capital Advisors, which has $5.5 billion in municipal tax-exempt and taxable strategies.

Martin Wasmer, a former broker with PaineWebber (now UBS) who launched his firm out of a studio apartment in 1988, says Wasmer Schroeder’s growth until recently had been one client at a time. “In the current environment we’re taking in a lot of money,” he says. According to Wasmer, since the third quarter of 2007, the firm had inflows of $80 million a month, compared with $50 million in a typical month previously.

Breckinridge Capital CIO David Madigan likewise says business has improved. He notes that between December 2007 and the end of February 2008, his firm brought in $200 million. Although Breckinridge lacks the buying power of its big competitors, Madigan says smallness provides an advantage in some markets. “Boutiques are more nimble, especially in the muni markets, where 97 percent of all trades are less than $1 million,” he says.

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