How a $75 Billion Bond Shop Plans to Stay Private

Institutional investors love that privately held asset managers don’t have to play by all the same rules as their publicly traded peers, including establishing growth targets for new business. But Boston-based Income Research + Management, a $75 billion fixed income manager founded in 1987, is expanding its senior team and clarifying the roles of executives in part to satisfy investors’ and consultants’ desire for transparency. 

Bill O’Malley, who joined the firm from Wellington Management as its third professional in 1994, is taking over as CEO and co-chief investment officer. Jack Sommers, co-founder of Income Research with his father John — and O’Malley’s roommate freshman year at Amherst College — will become executive chairperson of the firm’s executive committee. Sommers will continue to oversee compliance.

O’Malley will share the co-CIO role with Jim Gubitosi, a senior portfolio manager. Sarah Kilpatrick, also a senior portfolio manager, is taking over as chief operating officer. She will continue to oversee the investment and portfolio-risk functions and will take on responsibility for operations and enterprise solutions.

In a nod to its non-bureaucratic culture, the private firm has been run by three managing principals, including O’Malley and Sommers. The moves will become official on January 1. 

“Over the last several years, consultants and clients have wanted more transparency about who is doing what,” said O’Malley in an interview. “With the title changes, we’re also able to provide growth opportunities for Jim and Sarah.” 

O’Malley said the firm wants to stay private “forever,” a strategy it supports in part by distributing equity in Income Research broadly. Of its 175 employees, 55 have equity.

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O’Malley added that John and Jack Sommers began selling equity in the firm in 2001. “I was first one to buy a piece,” he said. O'Malley added that he and Jack Sommers want to continue to get diluted as other employees buy into the firm so that it can remain focused solely on fixed income. 

At $75 billion, the firm can invest in smaller issues and securities with creative structures that larger fixed income managers are too big to put money into, said O’Malley. As a result, even with investors’ move to passive fixed income and a market shaped by historically low interest rates, Income Research generated 60 basis points of alpha — or risk-adjusted returns — through securities selection on its core strategies this year. 

“The market is really challenging. You need to look hard for value,” he said. “But it’s favorable for us, because we are bond pickers. We get intrigued by different structures. We’ve bought 100-year debt. People ask us all the time, 'Why would you lend money to companies for 100 years?' Well, we can get out of that bond anytime and we happily sell” when the bonds rise, he explained.