Updated with corrections
Christina Seix possesses an unusual combination: strong maternal instincts and geekiness. She runs Seix Investment Advisors LLC, Upper Saddle River, N.J., like a big family. The firm started as an independent bond shop in 1992 and now is a subsidiary of SunTrust Banks Inc., Atlanta. The homey, full-functioning office kitchen is just one small piece of evidence.
Ms. Seix is quite happy these days. The economic downturn pushed her into the limelight, out from under the shadow of being what she calls a “boring” manager. With most of her strategies outperforming their benchmarks, her prudent style has rewarded her with more clients. Despite her humble and soft-spoken manner, she speaks with great confidence about her business and the industry.
In addition to running her business, Ms. Seix was on the board of directors of the Federal Home Loan Mortgage Corp. between 1990 and 2004. Now, she has a personal project, creating the Seix Residential School, a boarding school in central New Jersey for at-risk children, financed from proceeds of the sale of her firm to SunTrust in 2004.
In public, Ms. Seix is a sensible bond manager, but underneath is a proud Puerto Rican woman who celebrates her ethnicity every week with salsa dancing.
What's the connection between your love for math and your career as a bond manager? It was a beautiful marriage of my quantitative interests and capabilities and an asset class that we were (then) coming to understand better through quantitative tools. I entered the business in 1973, and that was around the time that a famous book called “Inside the Yield Book” was written by Marty Leibowiitz. And for the first time it explained the essential mathematical relationships that were necessary to understand bonds. The timing really, really worked quite well in terms of the bond market becoming more quantitative.
Did you always want to do fixed income? I stumbled into it. I was at a graduate program at Stonybrook (State University of New York at Stonybrook) in pure mathematics and received my master's degree in nine months. I had heard about a training program at ... Equitable Life. They were looking for strong competency in mathematics to train at their headquarters in midtown Manhattan. I joined in 1973. (It) was my first job, and the ... salary was $9,700. By 1976, I had had exposure to each of the major asset classes. The one that fit with my competencies best was fixed income. Pursuing what I was good at made all the sense in the world.
What's your view on the current investment landscape? The current dislocations in the equity and fixed-income markets are severe. We are moving into a severe consumer-led contraction. Any stimulus is going to go into only the most essential purchases. They'll pay down debt and possibly save a few dollars. In terms of consumers actually spurring economic activity, it's going to take some time. And that's a major negative, because they are more than 70% of GDP. We have just finished one year of recession in this country. It's likely that 2009 will continue this recession and we won't begin to see any move out of recession until sometime in 2010.
What does it mean for fixed-income managers? There will be some really deep soul searching on the part of fund sponsors about their current fund managers and the current products they are participating in.
What do you think is the role of bonds in the overall portfolio? (Seix) was founded on the philosophy that bonds must be the anchor in the overall portfolio. The way we assure that anchor status is by never stretching to buy securities where the yield on the security is too rich relative to the risks involved. In 2005 and 2006, we were in such a bull market (that) risks were not being priced appropriately. So the bond managers in particular were faced with a dilemma: Do I participate and continue buying these securities to optimize the return or do I stop in my tracks and say these securities don't represent value that I'm going to stand aside? What we did was the latter.
What happened then? It hurt us. It didn't hurt our performance today, but during that short period we were flat (relative) to the markets. And our clients mostly understood, but one or two replaced us with investment managers that were really leaning toward risks.
How did you convince the majority of clients to stay with you? We went back to our clients, not once, not twice, but on a regular basis and reminded big institutional clients why you hired Seix. You hired Seix to be the anchor ... You hired Seix because we have a very strong core competency in credit. In order for us to remain the anchor status and excellent credit quality, we cannot participate in this frenzied market where the yield increment over Treasuries doesn't pay you ... to step into that credit. Most of them were excellent about the situation and really accepted that for those years we were flat. One or two wanted to be very, very high in terms of total return of the fund and forgot that bonds have a place — they take down the risk. That's why you diversify. That's why you're not all in small-cap growth stocks.
How are you taking advantage of the current market cycle? We do believe there are a few very interesting products in the market going forward. One is bank loan asset management. This is a high-yield product. In the capital structure of a corporation, bank loans are senior to debt. They are stronger in credit than regular high yield. Their senior position and current pricing are very attractive. We started in 2006 and we were ranked the No. 1 in the loan participation fund category in the U.S. by Lipper for the calendar year 2007.
A second one is a credit dislocation portfolio. Instead of high management fees, a lack of transparency and a lock-up of several years in a hedge fund, why not consider a buy-and-hold portfolio of high yield or investment grade for four or five years? The yield is 12% to 13% today. The market is in a panic, and we are credit geeks. We can put it (a portfolio) together like that. This is too simple to be true, but it is.
You were ranked as P&I's best-performing high-yield manager in 2007. What's your secret? Credit, credit, credit. Our No. 1 core competency is to focus on a very strong credit discipline. All our success traces to that.
You became chairman of Seix this year, stepping down from the position of CEO and CIO. Are you planning on leaving soon? No. My name is on the door. It's my family. I love this firm. I pulled myself away from day-to-day operations to focus on strategic things — for example, design the equity plan for our firm. I do have this other interest that I'd like to see it realized — building a home and school for at-risk children, but I won't have a full-time job there.
