Moran and Albright cover muni debt for Bloomberg News in New York.years as a research analyst tasked with explaining the intricacies
of tangled credits to portfolio managers. He speaks a language
that only those investors who’ve spent years poring through
prospectuses are fluent in. He’s methodical, with an uncanny recall
of the details of decades-old bond issues.
In 2011 he was named co-head of fixed income, leaving him
with oversight of the firm’s state and local government bond
investments—now amounting to almost $200 billion overall. But
it was the high-yield corner of the market that for all of 2019 was
attracting hundreds of millions of dollars each month. Even long-
term debt issued by still-bankrupt Puerto Rico had rallied, cutting
the yields to around 3.5% in late February, akin to what virtually
risk-free borrowers such as California once paid.
By the start of 2020, more than half of the $231 billion in
high-yield bonds held by institutional holders was managed by just
four firms, according to data compiled by Bloomberg: Nuveen,
Invesco, Goldman Sachs, and BlackRock. Miller’s funds alone
received about a third of the new high-yield money that had come
into the market since the start of 2019.
He was accused of abusing Nuveen’s market power to quash
competition. A Dallas-based upstart, Preston Hollow Capital, sued
Nuveen, alleging the company and Miller used its market power
to strong-arm the biggest banks on Wall Street to stop doing busi-
ness with the smaller rival. Last July at the trial, in Delaware
Chancery Court, Miller said he was only blustering when he boasted
of persuading the banks to spurn Preston Hollow. “Sometimes
you have to exaggerate to get people’s attention, especially on
Wall Street trading desks,” he said in court.
At the start of 2020, Miller’s fund continued to draw new cash.
Some of his biggest wagers were paying off. After he expanded his
holdings of debt Puerto Rico had issued as part of its bankruptcy,
the securities continued to rise. Chicago’s junk-rated school system
debt rallied. The Virgin Train-backed bonds ticked up, too.
In the second week of March, as investors began to come
to grips with the dramatic impact the coronavirus would have on
the economy, the market turned on a dime. The bonds backing
the American Dream mall dropped to as low as 97.25¢ on the dollar
in late March, down from 120¢ when they last changed hands
in September.
In 2008, Miller weathered his fund’s 40% drop, bouncing
back to return 42% in 2009. In 2013 his fund lost nearly 5% when
the taper tantrum roiled fixed-income markets, only to come
storming back with a gain of almost 20% the following year. When
Donald Trump’s surprise victory in the 2016 presidential election
threw the markets into a frenzy, Miller’s fund saw outflows. Again,
he rebounded, posting 12% returns in 2017.
High-yield munis would need another recovery to make up
for the losses seen in March alone—a 10% drop as of March 26.
Miller’s fund could face further pressure as more investors see
the negative returns and pull their money, a dynamic that has
affected municipal mutual funds during prior periods of stress.
“I do have a lot of experience handling stressful environments
under periods of uncertainty,” Miller says. It was March 18, and his
fund would go on to drop 14% in a week. “Munis have always come
back strong,” he says, “Muni high-yield has always come back
strong.” —With Martin Z. BraunDown Towns
To t a l re t u r nSources: {NHMAX US Equity}, {LMHYTR Index}Nuveen High Yield Municipal Bond Fund Bloomberg Barclays Muni High Yield Total Return Index2030%3/26/200103/27/17<GO> INSIDE THE TERMINAL 51