Perry Beaumont, a longtime sell-side bond research pro who once ran Smith Barney's global fixed-income research effort, is opening a money management shop that will focus on "low-alpha" assets like Treasuries and agencies. East Hampton, N.Y.-based Beaumont, who just completed a two-year stretch as head of fixed-income research for the French insurance and financial holding company giant AXA, is confident that he can grow the asset base to the target level of $3 billion. He argues portfolio managers are going to be motivated to outsource low risk sectors, and focus on more complex sectors where returns are greater, like high-yield and MBS.
Beaumont's firm, Alpha Advisors, is also adopting a novel approach to fees: none will be charged until a positive return, or alpha, is generated above the target benchmark. Bond fund management fees vary, but are generally anywhere from 10 basis points to 1% of total assets under management. Carl Ericson, director of taxable fixed-income at Liberty Financial in Boston, says it's novel in that waiving fees, until threshold performance levels are met, is traditionally done in the management of institutional equities, but never to his knowledge in bonds. That said, Ericson notes, the fees for management of assets tied to well-known indices are down to 10 basis points in some cases. He says that there is little to be lost by Beaumont's attempting this strategy. "He's small enough to probably make money on returns alone, and he won't threaten the 'big boys,'" who could price him out of the market.
Beaumont came to prominence as the first Street analyst to publicly argue that not only would the Treasury run its first surpluses in more than a generation, but that a program of debt buybacks and declining issuance would soon become policy (BW, 8/3/98). Even more heretically, Beaumont reasoned that debt investors would flock to longer maturity agency debentures and pass-throughs for safety and liquidity reasons.