Bond managers shine

Ten years ago, Wasmer, Schroeder & Company was a small bond-management firm overseeing about $200 million, mostly for wealthy individuals and foundations in Naples.

In just a decade, the firm grew to manage to $3.5 billion in assets, as wealth advisers from across the country and larger institutions became clients.
When you look at Wasmer Schroeder's performance, it's easy to see why. The firm has outperformed most of its peers in areas such as municipal bonds in most time periods.

“Having a track record and being consistent helps them,” says Gary Queen, who heads up the Southwest Florida region for CapTrust, a Tampa-based firm that helps institutions select money managers.

Every year, CapTrust compiles performance data for the Review on money managers based from Tampa to Naples who report their track records (see tables). An awful year for stocks in 2008 wrecked many longstanding performance records by stock managers, including the longtime stars at Private Capital Management in Naples.

With a few exceptions, most stock managers from Tampa to Naples posted mediocre results over the five-year period ending Dec. 31, according to Zephyr StyleAdvisor data compiled by CapTrust. That's despite good results for some firms in 2009. “The managers who did the best in 2009 probably did poorly in 2008 because taking risk in 2009 paid off,” Queen says.

But bond managers at Wasmer Schroeder stuck to their playbook and generated consistently good results. “They are very conservative in everything they do and being conservative has paid off in the last several years,” Queen says.

Growing the firm
As word of Wasmer Schroeder's track record has spread, customers of wealth management firms tied to brokerage arms of Morgan Stanley, UBS, Merrill Lynch and Bank of America now have access to Wasmer Schroeder's bond expertise.

In addition, institutions such as university endowments, nonprofit organizations and insurance companies have started investing through the Naples firm. Even a few unions have turned over money to Wasmer Schroeder, including $30 million recently from the Teamsters in New York.

Wasmer Schroeder has about 1,200 accounts with an average size of about $2.5 million to $3 million each. About 70% of its clients are high-net-worth individuals and 30% are institutions.

With the Baby Boom generation entering retirement, fixed income investments will likely become a more important part of their asset allocation because of the need for income. “We've always felt the demographics favored us in the long term,” says Martin Wasmer, 52, principal and chief executive officer.

What's more, investors have seen their income from stocks in sectors such as financial services dwindle, as many companies cut their dividends in the economic downturn. Now, older investors are steering their money into safer, more stable sources of income such as top-quality municipal bonds whose income is generally free of federal income taxes (the prospect of higher income taxes in the years ahead will also make muni bonds more attractive).

Wasmer Schroeder emphasizes prompt portfolio disclosure to its clients, unusual in the bond-trading world where trades are well-kept secrets even from clients. “We let clients know what we've done, why we're doing it and what we're going to do,” says Michael Schroeder, the firm's principal, president and chief investment officer. And it does that promptly, not once every three months as many investment managers do.

Customer feedback is positive. “They like that,” Schroeder says.

Building the organization
As Wasmer Schroeder continues to attract new and bigger investors, its challenge is to grow its staff to handle customers. Both Wasmer and business partner Schroeder have turned over some of the day-to-day operations to key staff as they plot future growth.

Schroeder, 50, still participates in the credit committee meetings every Thursday when the staff decides which investments to buy or sell. But both men are also busy talking to new and prospective customers. “You always have to have that pipeline of new business,” says Wasmer. The firm is exploring a new business-development office on the West Coast to complement its similar offices in Cleveland and Philadelphia to keep assets growing at a 25% to 35% annual rate.

In addition, Wasmer Schroeder has hired two high-level executives in the past year. These included Chip Norton as managing director and fixed-income strategist and Reid Tomlin as director of municipal research. Both men bring several decades of experience in the business. “Now that frees me and Marty up for strategic decisions,” says Schroeder.

While it subscribes to outside research, Wasmer Schroeder also does much of its own. “You have to dig through the numbers,” Schroeder says. “Half the battle is looking for red flags.”

With its 43 employees, the firm is unusually large for its size, especially when you compare it to firms that manage stocks. “When you look at firms our size, we're way overstaffed,” says Wasmer.

But Wasmer Schroeder's emphasis on doing its own research and assisting customers with routine but critical tasks such as managing paperwork and other back-office compliance operations means it has had to build an organization at the expense of short-term profits.

It routinely queries customers such as wealth managers to ask them how Wasmer Schroeder can help them grow their business. It does that by providing research papers and useful, relevant weekly commentaries, for example. “We made a priority for service,” Schroeder says.

Wasmer Schroeder now has enough staff to grow assets to $5 billion. As it hits that level, it's likely to continue attracting larger accounts. Some institutions have placed as much as $100 million with the firm and that's likely to continue as its reputation grows.

Click here for a chart showing money manager performances from along the Gulf Coast.