Foundation & Endowment Money Management - Nonprofits Spy Taxable Munis

Nonprofits Spy Taxable Munis

The creation of Build America Bonds (BABs) has breathed new life into the taxable municipal bond market, and nonprofits are giving the instruments a fresh look. The bonds offer comparable yields to corporates with lower default rates; however, the market is smaller and less liquid. FEMM Contributing Reporter Joseph D'Allegro recently spoke with David Blair, senior v.p. at PIMCO; Peter Dunne, managing director at Convergent Wealth Advisors' institutional group; Peter Coffin, founder of Breckinridge Capital Advisors; and Cynthia Clemson, co-director of municipal investments, and Christopher Remington, municipal bond product specialist, of Eaton Vance Investment Managers:

FEMM: Should nonprofits invest in taxable munis? Coffin: Nonprofit can benefit from the combination of enhanced income with very high credit quality. Taxable municipals/BABs present an opportunity in a market where spreads and yields remain tight and low.

Peter Dunne

Dunne: Nonprofits should have a broadly diversified fixed-income allocation, which includes having the ability to invest in taxable municipal bonds. The taxable municipal bond market, which was often overlooked due to its limited issuance, has grown dramatically in the past year with the advent of BABs, creating a much wider opportunity set for investors. Depending on the size of the portfolio, the most efficient strategy to incorporate taxable municipal bonds is through a multi-strategy bond manager that has the experience and research capabilities to analyze all sectors of the fixed-income market.

Blair: Taxable munis provide attractive income relative to risk and provide a new source of portfolio diversification for non-profit investors.

FEMM: How are the risks of this asset class evolving? How has the financial crisis affected risk?

Dunne: We believe that many state and local municipalities will continue to face economic and budget challenges as income tax revenues are lower due to stubbornly high unemployment and lower property tax revenues as a result of declining property values. Accordingly, credit analysis is becoming increasingly more important. Historically, while ...

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Nonprofits Spy Taxable Munis

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