Sitting at a workstation on the trading room floor of Advent Capital Management L.L.C., Tracy Maitland peers into six computer screens, each flashing real-time stock market updates from around the world. In the background, Bloomberg TV broadcasts market news on a flat-panel monitor, with traders watching every up and down of the firm’s investments. There is an energy in the room, with staffers also keeping at least a corner of an eye trained on online news services. It’s an intense onslaught of data that comes with the territory of managing some $3.1 billion in assets.
“Every minute, we see how we’re doing, and we’re judged on that basis,” says Maitland, the New York City-based firm’s president and chief investment officer. Advent Capital’s team is continually looking at potential investments and assessing whether others are living up to their initial expectations. “We’re constantly researching things around the world,” he says, “so this business is intense in that it never shuts down.”
With 44 employees, the firm’s size belies the varied nature of its operations. Founded by Maitland in 1995, Advent Capital (No. 4 on the BE ASSET MANAGERS list with $3.1 billion in assets under management) specializes in convertibles, equities, and high-yield securities.
Since its inception, Advent Capital has launched three hedge funds and two closed-end mutual funds. The firm’s clientele is predominantly institutional and includes pension funds, foundations, and endowments. “Many people think of us as a hedge fund,” says Edward Johnson Jr., the firm’s chief operating officer, “but we’re not just a hedge fund, we’re a lot more than that.”
All told, last year Advent Capital posted healthy growth in assets under management, increasing 15.5%. This performance was notable because it marks a rebound from a tough 2005, when assets under management fell to $2.7 billion from $3.8 billion in 2004. That year convertible securities took a hit, partly because of declining market volatility. Convertible bonds are a type of bond that can be converted into shares of stock in the issuing company. They are suitable for investors interested in higher dividend payments than the stock might provide and a greater potential for price appreciation than traditional bonds would deliver. Convertibles are sensitive to market volatility because of their conversion option–when volatility is high, convertibles do well as investors anticipate potential gains; when volatility drops significantly, over a period of time, convertibles tend not to do so well.
“Volatility started to plunge after so much money had poured [into convertible funds], and people started running for the exits,” says F. Barry Nelson, senior vice president and former director of research. “So at a time when declining volatility was causing convertibles to cheapen–which in itself was bad for performance–people were redeeming from convertible [hedge] funds, forcing the funds to sell everything in sight.”
Accustomed to the ebb and flow of the market, Advent Capital’s management team continued with its growth plans, and in 2006 sought to expand the firm’s playing field by further enhancing its ability to trade on a 24/7 basis. A key step was opening an office in London and obtaining a registration and license with the British Financial Services Authority. This is significant because the FSA license allows Advent Capital to trade on the London exchange, making the office more than just a European marketing presence.
The firm also entered into a $100 million joint venture with Insinger de Beufort, a private bank in the Netherlands, whereby Advent Capital took over the management of a private fund that had been previously established by the bank. The companies jointly market the fund throughout Europe and South Africa.
Having the vision to develop a business that, like a well-balanced portfolio, is itself diversified, and taking the steps to compete more effectively on a global basis were the key
What’s a Convertible?
To understand Advent Capital, it’s important to know at least a little bit about convertibles. If you’re not familiar, take comfort. “Ninety-nine percent of investors don’t know anything about convertibles,” says Maitland. “That’s our challenge, to educate them.”
So how do convertibles work? To set the stage, know that convertibles are conservative investments that offer some protection from losses. Because the bonds can be converted into stock, they benefit if the stock price rises. Investors in convertibles won’t benefit as fully as the stockholders, but they will capture most of those gains. If the stock goes down, investors in convertibles will still be able to cash in the bond at maturity, and will have collected interest payments along the way.
Convertibles are often overlooked, Maitland says, because they have an element of stocks as well as an element of bonds. Because investors can’t easily categorize convertibles as an investment type that they are familiar with, they don’t get a lot of attention. “Even at Merrill Lynch, though [the convertibles] unit was the most profitable unit on the floor, we were always ‘those guys over in the corner’ because it wasn’t a mainstream business.”
It was at Merrill Lynch that Maitland made his name in the convertibles market. And, at least in part, it was this general lack of familiarity with convertibles in the marketplace that helped position Maitland to become an effective salesman and build his national reputation. Early in his career, in the mid-1980s, Maitland had the opportunity to work out of the firm’s institutional office in Detroit. The native New Yorker initially passed on the Midwest offer, but after a return visit fully recognized the potential of the position.
Within two years, Maitland had established the convertibles business in Detroit and helped grow the office to the second- largest satellite office for convertible sales and trading in the Merrill Lynch system. He says playing the role of an educator was instrumental. By visiting the officers of Midwestern banks who hadn’t used convertibles, he was able to show them how convertibles offered a mix of capital preservation with some upside potential, which was a balance of risk and reward that fit the investment goals of their clients. “It’s the ideal security for trust banks and insurance companies, which tend to be very conservative,” says Maitland.
In 1987, Maitland returned to New York City as the national sales manager for Merrill Lynch. In
this position, his network of contacts flourished as he began to manage some of the largest accounts worldwide, in addition to the national sales force. Ultimately, Maitland was able to tap into some of these relationships to provide financing for the launch of Advent Capital.“Fortunately, I had done well at Merrill, so I could afford to take the risk,” says Maitland of his decision to open his own firm. “I’ve always had an entrepreneurial mind-set.” To start Advent Capital out on solid footing, he says the firm’s coffers were stuffed with enough cash in the early days to “keep the lights on” even based on the most conservative projections. He recognized that people who took his calls from Merrill Lynch might not initially take his calls later from a startup. “I think most businesses fail because they’re not capitalized well enough,” says Maitland. “My view is that you have to prepare to give it a shot for three to five years.”
A pivotal point in the developing business came in 1998, when Advent Capital landed its first large client–the pension plan for the State of Maryland. “When we had $70 million, they invested $100 million with us,” says Maitland. “That really put us on the map.”
Assembling the Team
“People here come in suited-up to play in the big game and they believe
that they can win,” says Johnson. “We know we can’t win every competition, but if you believe you can, you’ll run faster and harder.” It’s common to hear sports metaphors in financial services, but here the stakes are clearly high, and the most successful players on Wall Street certainly aren’t known to be passive.
A key early addition to the Advent Capital team was Nelson, who joined the firm from Value Line, where he was lead manager of the Value Line Convertible Fund and the research director of the Value Line Convertibles Survey and the Value Line Options Survey. Maitland was a well-established player in the convertibles arena, and Nelson says he had little hesitation about joining the new firm. “Tracy’s been much better than most people at seeing the future, and he pushes ahead to achieve his goals,” says Nelson. “I think that vision and push are ingredients in any key leader–certainly in successful CEOs, and certainly in a startup.”
One sign of Maitl
and’s expanding vision was the addition of Johnson as chief operating officer in 2003. Because the firm had been growing, he was charged with managing the day-to-day non-investment aspects of keeping the business running, such as product development, strategic planning, marketing, and investor relations. Johnson also participates in the firm’s investment strategy, risk management, and research meetings to stay involved in all aspects of operations. He came on board from Merrill Lynch, where he was managing director in charge of its Strategic Portfolio Advisor service, which structured portfolios for clients with ultrahigh net worths, and the Institutional Consulting Services Group, which had about $60 billion under management. He was linked to both the investment side and operations, with involvement in all aspects of support for those units.Johnson is a relatively recent addition to the team, but it was his longstanding friendship with Maitland that helped lure him to Advent Capital. “Tracy actually introduced me to my wife,” he notes. Johnson says many of his initial projects were focused on preparing the firm for future growth, such as the addition of a new database to manage client and prospective client contacts, a rebranding of the firm’s marketing materials, and the hiring of more people for the marketing and investor relations staffs.
Assembling a team whose members know each other well and trust one another is an important foundation for any successful business. Another person with whom Maitland’s had a longstanding relationship is Odell Lambroza, who heads the firm’s hedged strategies. He worked with Maitland for nine years when they were at Merrill Lynch.
Yet another Merrill contact who landed at Advent Capital is Dr. Douglas Melancon. Though he has an M.B.A. and a medical degree, the world of finance won out. Melancon joined the firm three years ago and manages all of its healthcare investments. “I finished my undergrad a year early, and I thought ‘medicine is a business,’ so I should probably know something about it,” he says.
Maitland says another important hire for the firm was Managing Director Hart Woodson, who joined in March 2006. Woodson is the author of Global Convertible Investing: The Gabelli Way (Wiley; $29.95), one of the few books you’ll find on the topic. He had managed the GAMCO Global Convertible Securities Fund (GAGCX) since its launch in 1994. With respect to growing the firm, Johnson says there are “always challenges.” As a result senior management spends a lot of time on recruiting and hiring.
Launching Closed-end Funds
The most recent expansion for Advent Capital was the launch of its first products for retail investors. The firm started out with the Advent/Claymore Convertible Securities and Income Fund (AVK) in 2003, and two years later offered the Advent/Claymore Enhanced Growth and Income Fund (LCM). Both are closed-end mutual funds that are publicly traded on the New York Stock Exchange. Closed-end funds, unlike open-end funds, issue a fixed number of shares. Investors can freely trade the shares on the stock exchange. The firm has a limited distribution network because of its size, so Advent Capital partnered with Claymore Securities to promote these funds–although Advent Capital is responsible for the daily management of both funds’ investments.
Moving into the closed-end fund business has benefited the firm in a number of ways. In general, it’s an attractive business for investment management firms because of the predictability of the revenue stream, Johnson says. Once the shares are issued, the firm maintains that pool of assets so there’s some consistency. An investment in a closed-end fund is like buying stock in an investment company. Individuals can buy and sell shares in the fund without impacting the investment choices of the managers.
The closed-end business also supports the basic building block of a successful operation: talent. “It makes the firm much more stable and enables us to recruit individuals who ordinarily wouldn’t come to a smaller firm,” says
Maitland. “New York and London are littered with hedge funds that can’t get up to critical mass because they can’t recruit the right talent. If you don’t have the right talent, you can’t generate the appropriate returns and therefore you can’t raise the requisite capital.”Defining the Field
While Advent Capital markets its capabilities and track record, you won’t find any reference to the company being black-owned in its marketing material. “The reason is very simple,” says Johnson. “We are able to compete on a broader playing field when we are not categorized as a minority manager.” He notes that some organizations have certain allocations for minority managers, but those pools of money tend to be smaller.
What’s more, it’s not just about competing with larger firms for a larger slice of each deal; it’s about making sure that the firm is evaluating opportunities around the world. As Maitland lays it all out, investors who are thinking about investing in auto companies can’t look at just Ford and the like. “You have to see what Toyota is doing to make an intelligent decision,” he says. “We’re in a global economy, so you have to have some appreciation for that.”
And in a business where you’re judged by performance, Advent Capital needs to be where the performance is. Many European markets have outperformed the U.S. market the past several years, and many Asian economies are growing at a faster pace. Says Maitland, “At some point we may consider putting an office in Asia as well.”
In business for a dozen years, Advent Capital is thriving. But unfortunately the complexion of Wall Street is still slow to change. Maitland says a key element is exposure to the industry and the ability to build relationships, which proved so vital in his career. He says there are not enough mentorship opportunities for blacks on Wall Street. “Very often, people are on their own to work their way through this maze,” Maitland says. “It’s unrealistic to think that relationships don’t make a difference. … My contractor is trying to get me to hire his son to do some gardening–relationships make a difference.”
B.E. 100s Flashback
In 1982–the 10th anniversary of BE ‘s ranking of the nation’s largest black-owned businesses–our editors officially identified the best among African American financial institutions. That year, BE selected Cleveland-based First Bank National Association as the Bank of the Year; Illinois Service Federal Savings & Loan Association as the Savings and Loan of the Year; and Atlanta Life Insurance Co. as the Insurance Company of the Year. Over the past 25 years, consolidation of the financial industry and the emergence of black-owned investment banks, asset managers, and private equity firms led our editors to drop our S&L and insurance company rankings. Today, BE selects onl
y one leader across its four lists tied to financial services. As for those firms selected in 1982, Illinois Service is the only one to maintain a BE ranking–No.16 on the BE BANKS list. Atlanta Life, however, still operates as one of the four remaining black-owned insurers.