Bonds quietly did quite well in ’99

Stock mutual fund managers weren’t the only ones celebrating in 1999. Managers of large domestic bond portfolios also reaped assets.

Domestic fixed-income asset growth for the top 10 firms — those with more than $10 billion overall — hit $85.2 billion last year, a 21% increase from 1998, according to sister publication Pensions & Investments’ Money Manager Scoreboard. The survey covers the 12 months ended Nov. 30.

These large firms point to a combination of rebalancing and broader mandates as reasons for their growth.

“The strongest thing for all fixed-income managers was the equity market appreciation,” says Brent Holden, managing director in account management at Pacific Investment Management Co. in Newport Beach, Calif.

Pimco had gained the most new net assets of the group as of Nov. 30.

Mr. Holden says that most asset withdrawals at pension funds came from stocks, not bonds. He also says that in the paring of managers during company pension fund mergers, pension executives have been staying with the larger firms, like his.

At Northern Trust, $7.9 billion, or the majority of its fixed-income net new growth was in active management strategies, says Stephen Potter, managing director of its institutional group. Much of the growth in active bonds was from new mandates for the Chicago bank’s core fixed-income product, which just turned three.

Barbara Novick, managing director and director of marketing and client services at New York-based BlackRock, sees a trend toward broader mandates, which helped her firm in 1999.

Last year was marked by the introduction of more core-plus strategies and a new Lehman Brothers Universal index, which accelerated the movement away from specialist firms in favor of larger bond shops, Ms. Novick says.

She also notes that plan sponsors have consolidated money managers and want to place more money generally with the larger company.

“I believe our philosophy and style is in vogue,” Ms. Novick says of the firm’s risk-controlled core bond portfolios.

The results were, in fact, very different for smaller firms. The top 10 gainers in the survey with less than $10 billion in overall assets saw less money coming in than they did in 1998. In 1999, they reported anywhere between 2% and 67% less in asset gains than in 1998.

While bond sentiment among institutional investment professionals is still negative, Tal Daley, senior vice president and director of marketing for Baltimore’s Legg Mason Capital Management Inc., says he noticed only a few plan sponsors rebalancing assets last year.

Although Legg Mason saw an increase in U.S. bond assets, Mr. Daley expects more growth once the bond market heats up again and stocks lose some of their luster.

“There is a small cadre at both defined benefit plans and defined contribution plans that have concluded that the stock market is overvalued and the bond market is undervalued,” he says.

While Pimco achieved all of its domestic bond growth in active management, other firms didn’t have the same results.

New active domestic bond business among the biggest 10 companies fell by 4% to total $65.7 billion in 1999, following the huge boom in active business in 1998, according to the survey. In 1998, assets flowing into active bond portfolios as reported by the 10 largest gainers were twice those of 1997.

Half the leaders in domestic bonds also were on the top of the list in active fixed-income management. Pimco, BlackRock, Banc One Investment Advisors Corp., Legg Mason and Trusco Capital Management gained all of their assets in active fixed-income management.

Some of the same managers that saw growth in overall domestic fixed-income assets saw growth in domestic balanced accounts as well.