Saybrook Fund Advisors LLC has made waves in the high-yield municipal investment arena by bringing aboard seasoned portfolio manager Bill Black to spearhead their inaugural high-yield separately managed account (SMA) strategy. Black’s reputation precedes him; he’s been a key figure in high-yield portfolios since 1984, with a rich history working at respected firms such as City National Rochdale and Invesco. His arrival at Saybrook on a Tuesday marks a pivotal step for the firm as it seeks to solidify its platform in distressed and defaulted debt sectors.
The enthusiasm from Saybrook’s co-managing partners, Jon Schotz and Jeff Wilson, underlines the strategic importance of Black’s experience. “We wanted someone with lots of experience in high yield. It was a no-brainer to call Bill,” Schotz remarked. The synergy created by this new executive team could be instrumental in navigating the treacherous waters of high-yield municipal bonds, a niche that demands both extensive knowledge and hands-on management.
The SMA Effect: Tailoring to the Investor
Separately managed accounts are burgeoning in popularity, especially in the municipal market, which has boasted an impressive $1.63 trillion in assets under management (AUM). With estimates suggesting that SMAs constitute around 25% to 30% of the municipal market, it’s clear that individual, high-net-worth investors are seeking a more personalized investment approach rather than the one-size-fits-all nature of mutual funds.
Black acknowledges that “public perception has mostly favored high-grade muni SMAs,” and notes that few funds target junk-level or unrated credits. This gap in the market presents an opportunity for Saybrook to carve out a distinctive niche. The chances of investing in distressed bonds often hinge upon the investor’s willingness to embrace risks that others may shun. As Black puts it, successful investing in these spaces requires both the right investors and the right management team.
Countering Market Pressures: The SMA Advantage
One of the significant advantages of SMAs is their ability to withstand outflow pressures that typically plague mutual funds during volatile market conditions. Black noted that with SMAs, long-term investors are more likely to retain their positions rather than succumb to impulsive redemptions. “We’ll be the buyers,” he asserts, signaling a commitment to counter-cyclical investment strategies that can yield returns over a longer timeline.
In contrast, traditional mutual funds often find themselves in a reactive cycle, forced to buy and sell based on immediate investor sentiment. This structural downside not only hampers performance but can also deteriorate the investor experience. By focusing on longer-term investments, Saybrook aims to create a stable base that isn’t constantly buffeted by the winds of market sentiment.
Diving Deep into Distress
Saybrook’s strategy appears laser-focused on identifying opportunities that others overlook, particularly in sectors like senior living, land-backed securities, and higher education. The firm prides itself on having a robust team capable of “digging into deals that others may want to pass on.” The implication here is that while many institutions may avoid certain risks due to headline sensitivity, Saybrook intends to capitalize on them—provided the potential for return justifies the risk.
Black’s seasoned expertise is expected to guide this approach. He emphasizes the importance of relationships with nontraditional broker-dealers in sourcing speculative deals. This bespoke strategy allows the firm to stay nimble and responsive, engaging with opportunities that may fall outside the radar of larger, more traditional investment houses.
Market Dynamics: Navigating the New Normal
The evolution of the municipal bond landscape is influenced by larger macroeconomic factors and shifting investor behaviors. The exit of major Wall Street entities like Citi from this space signals a sea change whose long-term ramifications are yet to unfold. For Black and Saybrook, these changes could present both challenges and opportunities, particularly in terms of liquidity.
Currently, “liquidity seems pretty good in high-yield munis,” Black shares, but the question remains: how resilient will that liquidity prove to be in the face of sudden market shifts? As we have seen before, the landscape can change dramatically in response to economic pressures.
The strategic hiring of Bill Black by Saybrook Fund Advisors is more than just a typical corporate move; it reflects an acute awareness of emerging trends and the growing need for tailored investment solutions in a volatile market. While significant risks remain, especially in highly speculative sectors, the firm’s approach appears to be grounded in a balance of calculated risk-taking and deep industry knowledge—a combination that may well define its future success in high-yield municipal investing.