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Tracy Maitland Has Been Waiting Decades for Institutions to Discover Convertibles

The last year may finally provide institutional investors with the evidence they need to get off the sidelines, according to the Advent Capital Management founder.

For some companies struggling during the pandemic, convertible securities were the perfect financing option: Investors got a hybrid security with some equity upside and some of the protections of a bond. 

Now, Tracy Maitland — founder, president, and chief investment officer of Advent Capital Management, which specializes in convertibles — is hoping institutional investors will finally increase their allocations to the asset class.

Convertibles are coming off a record year in terms of performance and the number and value of new deals. New convertible issuance was up 52 percent globally and 116 percent in the U.S. alone, according to Refinitiv. In the first three months of 2021, issuance is 90 percent higher than the same period in 2020. Issuers included companies from Airbnb, DraftKings, Beyond Meat, and Spotify to automaker Ford. 

Even after spending decades trading and investing in convertible bonds, Maitland said he has never been busier. He expects that investors will continue to invest in convertibles, which are a defensive strategy, as market volatility continues. 

“Converts became a staple for financing in the pandemic,” Maitland said by phone. Struggling, but well known, companies like cruise lines sought rescue financing and tapped the convertibles market for liquidity. Convertibles gave them access to a new investor base that wanted equity-like returns but bond structures, explained Maitland. At the same time, convertibles gave a lot of volatile growth companies access to capital. “We have many more things that we can consider for investment opportunities,” he said. In addition, institutions are attracted to the added liquidity now available in the market. 

“But it’s still an overlooked asset class,” Maitland said. He got his start in convertibles when he joined Merrill Lynch after graduating from Columbia University in the 1980s. While at Merrill, the Advent founder turned convertible sales into one of the firm’s most successful areas. He spun out the operation in 1995 and launched Advent. 

Advent, with about $11.5 billion from mainly institutional clients, is one of the largest investors in the asset class, which totals about $665 billion. Institutions represent more than 90 percent of Advent’s assets. 

Currently, institutional investors only have about 1 percent of their portfolios in convertible securities, according to Maitland’s own estimates.

He doesn’t view the low pickup by institutions as frustrating. At 1 percent, “it’s an opportunity,” he said. 

Advent’s assets have increased more than 50 percent in the last 12 months. The firm’s enhanced fixed income offering was up 16.9 percent net of fees in 2020, and its defensive equity strategy was up 40.8 percent on a net basis last year, according to an investor letter viewed by Institutional Investor. The firm has seen new flows into its hedge fund, as well as its long-only equity and fixed income strategy. 

Maitland has been a stalwart in the asset class. After the global financial crisis shredded convertible arbitrage strategies, most of which were over-leveraged, scores of hedge funds and others closed their doors. The memory of that still makes some investors skittish. 

But Maitland argues this crisis has made convertibles a lot more mainstream. 

Now a lot of firms looking to take advantage of the growing market have to build back infrastructure and hire experts. “There were 443 deals last year,” he said. “You can’t sift through those with two to three people.”

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