Impact investing covers a lot of territory, but the team members of BreckinridgeCapital Advisors have narrowed it down totheir sphere of influence: fixed income. Forthe Intermediate Sustainable Tax EfficientSMA, this means focusing on municipalbonds — largely those rated single A andhigher and that fit its impact qualifications, says Laura Lake, Breckinridge’s CIO.
“During 2019, we did shift our curve
positioning a bit,” Lake explained. “We
were overweight at the front end (of the
curve). And as the curve flattened, we mod-
erated and became more curve neutral.”
This approach worked. The $2.2 billion
strategy returned 5.51%, which is especial-
ly impressive due to its emphasis on A to
AAA-rated municipal issuances, according
to Envestnet analysts, who selected it from
over 200 qualified contenders. Plus, it out-
performed the ICE BofA 1-10-year AAA-A
Muni Index by 43 basis points. (ICE
stands for Intercontinental Exchange,
which bought Bank of America’s fixed
income index platform in 2017.)
Lake, who joined the firm almost threeyears ago, says the Breckinridge group lookscarefully at downside risk as an investment-grade bond manager. Its researchuses a bottom-up process, starting withfundamental analysis, such as reviewingfinancial statements and doing projectionsof revenues and expenses of each muni.Next, the team members determine “how[a bond’s] budget looks and what kind ofpolitical situation environment they’re in,”and then they rate the bond accordingly.
The portfolio team also does proprietary ESG research. Using analyststied to specific sectors “gives us a muchbetter kind of color and insight intowhat matters from a credit perspective,”she explained. Each sector analyst hasdeveloped his or her own proprietaryESG framework, which are taken from avariety of sources, such as census data or
Impact Asset Manager of the Year
Breckinridge Capital Advisors
Intermediate Sustainable Tax Efficient SMA
information on wealth dispersion.
“We look at all that data along withthe fundamentals to get a more holisticview of an issuer and see what are somepotential credit risks there could be thatwe’re not going to see in the financials,”Lake said.
“Whether it’s a local community, aschool district, a water and sewer issuer,we take those factors and integrate theminto our view of the credits that we’reinvesting in. One of the big big things welook at is climate risk, specifically, formunicipalities,” the CIO explained.
Unlike corporations, municipalitiescan’t pick up and move, and these risks — from rising sea levels to inland flooding,hurricanes and heat stress — are taken into account when bonds are rated. TheBreckinridge team does its own internal ratings, especially with regard to ESG risks,and uses those of outside rating, as well.
Cybersecurity risk was a particular focus last year, as ransomware threats rampedup. “We’re seeing that more with local governments, where budgets might not be ashigh and cyber risk isn’t [a priority]. But ransomware can shut them down for days,”she said.
The team entered 2020 with caution, largely because of the aging stock market.“Then March hit, and all the excitement in bonds markets happened. We starteddoing stress tests sector by sector,” the CIO explained.
“Think of a higher education entity on the municipal side with tuition, room and
board and athletic fees all dropping. How can they withstand that?” Lake asked. “If
the endowment drops, what is that going to look like? Those are the kind of tests
we’re running. The same goes for areas of the country exposed to oil [revenues].”
As for the COVID- 19 pandemic, “We’re well positioned [if there’s] a second wave,”
Lake added. — Ginger Szala
“We look at all thatdata along with thefundamentals to get amore holistic view of anissuer and see what aresome potential creditrisks there could be thatwe’re not going to see inthe financials.”
Title: Chief Investment Officer
Years with firm: 3
Years in financial services: 22
Investment focus/asset class:
Asset management firm:
Breckinridge Capital Advisors
Firm headquarters: Boston(with an office in San Diego)
Year firm was founded: 1993
Number of employees: 82
AUM as of March 3, 2020: