Below, we excerpt from the latest monthly profile, "Capital Advisors Group's Campbell, Pan Talk SMAs," from our flagship Money Fund Intelligence newsletter. This month, MFI interviews Capital Advisors Group's Ben Campbell, President & CEO, and Lance Pan, Director of Investment Research & Strategy. We discuss their business, and issues in the money markets, the separately managed account space, and the area just beyond money market funds. Our Q&A follows.
MFI: How long has Capital Advisors been running cash? Campbell: We started in 1991 as an "outsourced" investment management solution for treasurers. Our focus was then and is now managing separate accounts for institutional cash investors. As we've gone through different credit and investment cycles, we've seen the need for and developed credit and risk management products in response to inquiries from treasurers. We began by providing credit analysis of securities and portfolios, which although separate from our invest management business, drew upon our strong research and portfolio management capabilities.
That evolved into the surveillance and management of money market fund risk through our FundIQ product. We're now beginning to help organizations evaluate their overall counterparty risk exposure by examining the risk associated with money market funds, individual securities, deposits and other counterparty exposures. I've been on the investment side for 30 plus years. I started my career at Fidelity Investments where I was more of a generalist and then I moved on to The Boston Company, where I started to focus on the money markets arena, before founding Capital Advisors Group. Pan: I started with BofA's [former] Fleet Investment Advisors, which was named Columbia Management Group. I was there for seven years working on fixed income products up and down the curve. I started with Capital Advisors Group in 2003.
MFI: When have been your big growth periods? Campbell: Crises have helped because we've always been credit centric and very [focused on] risk management. The core of our business is running separate accounts and providing money market fund research. We've had significant asset growth in times of strong funding environments when it's been relatively easy for corporations to grow their balance sheets.
MFI: What have you been working on lately? Campbell: Our FundIQ research began in 2009. It was an extension of our internal credit and review process for our own money fund positions in separately managed accounts. We developed the product in response to inquiries from a number of large institutions for assistance in understanding and managing the risk associated with their large money market fund positions. The functionality of the FundIQ product has grown since then and we are constantly working to further enhance the product. For example, as the finance sector has gone through a series of downgrades we have responded to the market's needs by capturing and analyzing more aspects of risk within money market funds. We're also in the process of developing a product that helps to capture, analyze and manage organizations' overall counterparty risk.
MFI: What does FundIQ focus on? Pan: FundIQ research is a credit tool for large institutional investors that want to have a deeper understanding of their money market fund investments. In addition to looking at underlying securities, it evaluates characteristics of money funds such as sponsor quality and management capabilities. At the end of the day, we want to ascertain the likelihood of the fund being able to provide liquidity to our clientele in times of stress.
MFI: What's your biggest challenge? Pan: Low yields and lack of supply remain the major challenges for both money market funds and separately managed accounts. Historically, our main challenge has been educating our clients about various asset classes and credits. For example, we believe that certain types of asset-backed securities have a place in a portfolio, but investors need to understand and feel comfortable with the risks and characteristics of the asset class.
MFI: What are you buying now? Campbell: We have a fairly decent range of strategies that we run for separate accounts; the strategy for each account is mapped to the risk tolerances and needs of each client. We typically invest in a wide range of short-term investments such as commercial paper, corporate bonds, government securities, asset-backed securities and certain sovereign credits. Pan: Our separately managed accounts can be a nice compliment to money funds. Our sweet spot is the 90-day to the 2-year part of the curve.
MFI: What are customers asking about? Campbell: A number of customers are striving to understand what their exposures are in both investment vehicles and elsewhere throughout their organizations. Pan: Another question [we get] is, 'What is going to happen to money market funds if the NAV were to float?' Campbell: We always have had a broader view of investment solutions. Certainly, we bring specific solutions with respect to separate accounts and risk management for money funds. But we also try to act as an extension of our clients' internal treasury efforts, addressing issues such as risk management and credit management.
