Drew Zager

Managing Director, Morgan Stanley Private Wealth Management, Los Angeles



Age:

47


Education:

B.S., finance; B.S., accounting,California State University, Fullerton


Team Assets:

$5.5 billion


Typical Account:

$60 million


Specialty:

Fixed income securities


Years in Business:

27


Quote:

“A lot of people in this business, they may have had some success. But a lot of people rest on their laurels and it’s important not to do that in this business.”

You might say Drew Zager got big by going small.

The 47-year-old money manager with Morgan Stanley has climbed his way up the list of the city’s and the nation’s top wealth advisers by eschewing the type of broad investment advice dispensed by many in his profession and instead picking a relatively narrow specialty and running with it.

“A turning point for me was deciding early on to become a specialist in a niche in the market being a fixed income manager,” he said.

Zager now heads a six-person team that specializes in U.S. dollar high-grade, tax-exempt and taxable fixed-income portfolios. The team has built a portfolio with value in excess of $5.5 billion.

“It’s easy for us to compete with someone else who’s doing the whole asset allocation, because our sole mandate and mission is fixed income,” he said.

As the more conservative part of clients’ portfolios, fixed income securities certainly aren’t as sexy as some other investments, but Zager has built a career on providing consistent returns without much volatility. Besides, Zager said, he is not trying to make his clients rich they’re already wealthy and he deals with what he called their “stay-rich money.”

“They’ve worked very hard to make this and they want to make sure they get a good after-tax return on that. They do not want a lot of volatility in their portfolio,” he said. “We don’t have home runs like particular equity managers might, and we don’t look to hit a home run. We look to provide consistent high after-tax rates of return. That’s why our clients use us.”

But the rates of return have not been as high lately as they have in the past. Over the last year and a half, he said, yields have been depressed as foreign investors have bid up the prices of U.S. dollar bonds.

But now foreign investors may be diversifying away from U.S. dollar assets, he said. This, along with whiffs of global inflation, are currently coloring Zager’s investment outlook.

The yield curve seems to be moving from inverted to flat on intermediate and long-term bonds, which should see higher real rates of return later this year making them a better investment.

Zager got his start in the world of finance in the early 1980s. After working as an investment manager for a year, he moved to the accounting and professional services firm KPMG, where he was a senior tax consultant. The expertise he gained as a tax consultant helps him maximize returns for his clients in his current position.

“I’ve really tried to use my tax background from my previous career,” he said. “The reason we’ve had a lot of success is because of our tax backgrounds and being able to move between taxable and tax-exempt and in-state and out-of-state bonds.”

Zager joined Morgan Stanley in 1986, where he provided bond coverage for some of the firm’s middle market institutional clients. He moved into fixed income portfolio management in 1991, and he now manages money for some of the firm’s largest clients.

The team that Zager put together handles accounts for about 70 clients, with a minimum account size of $10 million. Among its clients are two billionaires.

Zager’s team has done well because of its collective expertise, but he admits that some of its success, as is sometimes the case with investing, was due to luck. One such case came in the mid-1990s, when Orange County defaulted on its bonds.

“We didn’t own any of the bonds because of the expensive nature and when the default happened we looked very smart,” he said. “A lot of investors gave us a lot of money because we were one of the only money managers to not own Orange County bonds.”

But even with success, Zager said he is working constantly because when it comes to wealth management, fortune can be fleeting.

“You can’t ever take a break,” he said. “Even if you had great performance in the past, all that matters is how you’re doing for your clients today.”