Breckinridge's Incoming CEO Shares Formula for Growth

Zooming in a bit, what goes into crafting a successful bond portfolio?

To boil it down, we want to invest in strong issuers of municipal debt, and we also want to identify corporate issuers that have really strong balance sheets. Our premise is that, when people buy bonds — particularly municipal bond investors — they are generally doing it with money that they want to be "safe."

Our clients want to sleep well at night, but at the same time, they are employing us to find the right balance between preserving capital and seeking returns. They are also coming to us for our specialty research and analysis.

This is especially true in the municipal bonds space. If you don't work in the space all the time, it can be difficult to appreciate just how fragmented and inefficient the municipal bond markets are. It is one of those spots in the market that, in our view, really calls for highly skilled professional management of the type we deliver.

Think about it. You have literally thousands of government issuers, right? And there are many more dealers to work with compared with other markets. It's like 130 different dealers that we're talking about here. It's just a completely different animal compared with large-cap equities, for example.

At a high level, we talk about our investment processes being a combination of top-down and bottom-up research — meaning that we do take into account some of the macro backdrop with respect to interest rates, but there's so much more that goes into it.

Besides interest rate uncertainty, are there other big questions your analysts are grappling with?

Yeah, one thing that comes to mind is more of a market structure issue than a question about policy or where rates are heading.

As you know, there has been so much wealth creation here in the U.S. in recent decades, especially among the baby boomer generation that is entering retirement and is now looking, in many cases, to dial back their overall investment risk. As you can imagine, that means there's been a tremendous amount of demand for municipal bonds, but unlike the other parts of the bond market that have boomed, the municipal bond market hasn't budged in about 10 years.

That is, the muni-bond market was valued at about $4 trillion a decade ago, and it's still a $4 trillion market today. The result is a real supply-demand imbalance. Why is this happening? Some of it is related to the regulatory backdrop, which has seen some rules that have created some disincentives for issuers of new debt, but there's also just the need for local governments to balance their budgets and avoid unsustainable debt loads.

The result is a really constraining investment environment, and we need to keep that in mind as we think about things like the relatively attractiveness of municipal bonds versus taxable bonds. A lot of people are still using their value benchmarks that they set up five or seven years ago now, but you need a fresher perspective.

Are there other big questions you hear from the advisor community?

I get to speak with a lot of advisors, because all of our business is distributed through intermediaries — with many of them working at RIAs or at the wirehouses. Generally, they bring up a lot of the dynamics that you and I have been talking about today.

They tell us they want higher-touch service on our end so that they can, in turn, deliver more personalized investments portfolio exposures to their clients. They want to make sure our approach is as tax-efficient as possible, and many of them have clients who are leaning strongly into their family or personal values while building a portfolio.

They assign a lot of value to anything we can do that helps them stand out as thought leaders and educators for their clients. Finally, they tell us about how important it is to have transparent and detailed reporting on what is happening within their clients' portfolios.

Pictured: Oggie Sosa