On the morning of Oct. 20, 1987, a day after the stock market crash, Michael McAdams, then working at National Bank of Canada, met with the chairman of First Capital Holdings, Bob Weingarten. Although most of the market was still jittery from the previous day, Weingarten mentioned that First Capital's portfolio had done pretty well, in large part because of the loans it held. As a result, its mutual-fund subsidiary Pilgrim Group had begun contemplate raising a mutual fund investing primarily in bank loans. Andre Berard, then National Bank of Canada's president, said that as part of the two firm's relationship, McAdams, the Los Angeles office manager, would work with Pilgrim on the product. About four months later Mark Garbin, now managing principal at Société Générale Constellation, hired McAdams to be the manager of its first retail mutual fund. The rest, you could say, is loan market history.
"Mike is definitely one of the pioneers of the loan market," said Kevin Burke, sales and market intelligence leader at GE Capital Markets, who has known McAdams for more than 15 years. "Mike was one of the first people who looked at loans as an asset class that would appeal to a wider universe than just banks. His consistent focus has been on the long term healthy growth of the asset class and what was in the best interest of both borrowers and investors."
At Pilgrim, McAdams ran the first retail senior floating rate loan fund, the Pilgrim Prime Rate Trust, for about seven-and-a-half years before it was sold in 1995 to Express America Holdings. He then went on to start with market colleagues ING Capital Advisors in 1995 and then Four Corners Capital Management in 2001. Throughout this time he has been a tireless proponent of the market. For his dedication, Credit Investment News is awarding McAdams its second Outstanding Contribution Award.
After graduating with his MBA from the University of California, Los Angeles, McAdams began his career at Manufacturers Hanover Trust Co. He then moved to National Bank of Canada and Pilgrim. After Pilgrim was sold to Express America based in Phoenix -- McAdams and his team commuted for six months before he felt the market was right to start his own firm. Along with Elliott Asarnow, Virginia Henneberry and Mark Smith from Citigroup, McAdams and his team from Pilgrim, including Mike Hatley, created ING Capital Advisors. Mother ship ING employed the group and allowed them to set up a freestanding subsidiary to focus on bank loan-based investments. It is believed this group is the first-ever investment management company to focus entirely on bank loans. McAdams served as president, ceo and chief investment officer during his tenure at ING. He worked there from 1995 to 2001, during which time ING completed more than a dozen structured transactions and had over $7 billion in assets under management.
"His primary contribution is to have the foresight to have the first senior loan fund when no one had ever done one," said Darvin Pierce, executive director at Van Kampen Investments, who worked with McAdams at the National Bank of Canada. "It was all brand new; no one had ever done it and he could have failed, but Mike had the guts to do it."
ING later bought Pilgrim, McAdams' old firm, and by that time he was looking for something new to do. He decided it was time to establish a new firm and set up Four Corners. About eight or nine individuals joined him from ING and along with two partners, Robert Bernstein, managing director and chief investment officer, and Andrew Cooney, managing director, structuring and analytics, and cfo, they started the firm in 2001. It was a rough beginning. Financial backing was tough to come by in the wake of the Sept. 11 terrorist attacks. It took about two years to get any real traction because of market conditions following 9/11, McAdams said.
Four Corners finally received backing from Macquarie Bank of Australia. The Aussie connection was made through one of McAdams' first sellside loan sales man, Ken Barkauskas, who had worked at Bankers Trust and had moved to Macquarie. The firm ended up doing its first retail fund in late 2003 and did its first CLO, Four Corners CLO 2005-1 in late 2004. It was a $305 million CLO arranged by Morgan Stanley. Four Corners now has $3.5 billion under management invested in 12 different products, including an open-end and close-end fund, hedge fund, collateralized loan obligations and private accounts for U.S., European, Asian and Australian investors.
Throughout his involvement in the market, McAdams has been very involved in the LSTA. He served as the chairman in 2001 and its vice chairman in 2002. He has been a board member since 1998. He has been involved in a variety of committees, including early efforts to standardize mark-to-market and most recently a member of the Asia working group.
McAdams said the most important trends in the market have been the change in liquidity, number of players, the volume of primary and the volume of secondary, which has made it a "widely appreciated asset class that is good for existing investors as well as future investors." Looking forward, he said globalization will be a big factor. He anticipates in five years Asia will be where Europe is today and that the U.S. and European markets will be fairly integrated.
On his radar is a code of ethics for the market, specifically so that if a problem occurs at one shop it is an isolated incident not an industry problem. He explained that it can be as small as the way the asset class refers to itself, whether saying it has a "low volatility" or whether it is called "stable." He said he ends up speaking with a number of clients, clarifying their expectations. Another area where he has seen progress is in ensuring there is not a breach of the private/public wall between loan and bond shops. He said the LSTA has taken a role on both issues and that at a minimum there should be a best practices or code of ethics in place.
"I think Mike always gets the big picture," said Andy O'Brien, managing director at JPMorgan. "He always has the interest of the entire asset class at heart. He was at the forefront of the asset class and has really become one of the steady forces throughout the years."
