Macro Management
Joan Payden has adopted a global perspective when it comes to dealing with $40 billion in clients’ assets.
By ANTHONY PALAZZO
Staff Reporter
Joan Payden doesn’t act like the typical chief executive of a $40 billion-in-assets investment manager. Her office, on the 32nd floor of a downtown L.A. high-rise, is inhabited by stuffed animals and fine artwork. She sips tea nonstop and politely declines to state her age.
These warm-and-fuzzy environs, however, belie her more ambitious side. In the 1970s, she was the first woman partner at the investment firm of Scudder, Stevens & Clark. In 1983, she left Scudder, draining her retirement account to launch her own firm, Payden & Rygel.
“Never assume anything,” says a sign on her semicircular desk. For an interview, Payden comes around to the front, and answers questions directly. When she deems one to be too inflammatory for an on-the-record answer, she reaches over, stops the tape recorder and speaks her mind. Her trailblazing past is an unavoidable part of the story, but Payden prefers to focus on the issues of the day. “I get tired of answering the same old questions,” she said.
Question: What are the risks you’re seeing in the markets today?
Answer: You’ve got to take a broader perspective in seeing where risks and opportunities are. Look where all the debacles have happened. They haven’t been in the more speculative areas. The Xeroxes and the Enrons and the SoCal Edisons. I can go on and on. Could some of them have been avoided if people took a broader view on things? Possibly. We think stock and bond research and investing are coming together and you really have to look at a lot of factors political factors, social factors, financial factors.
Q: Where are the opportunities?
A: People are somewhat scared because of the environment today, and people are questioning everything. A lot of areas have been beaten down, and there are some very good companies on both the debt and equity side and a fair amount of opportunity. One area is high-yielding corporate bonds and another area is smaller-capitalization equities. Many of these smaller, newer companies don’t get high ratings, but they’ve got good management and they know what they’re doing. Over time I think the investor will be pleased with them.
Q: What is the most common misconception you find among investors today?
A: If I had to say one thing, it’s unrealistic expectations. The immediate past has seen huge returns in the equities markets and then huge negatives. And I don’t think people evaluate the risks of deflation instead of inflation. If you have deflation you’re probably going to have lower nominal returns.
Q: How do you approach picking stocks?
A: You’ve got to look at what can go wrong and what can go right. What is foreign competition? What are some of the regulatory things that might change? The obsolescence factor. I think that the creative, subjective element is going to be more important in the future than the objective element.
Q: What do you mean by that?
A: You don’t find the subjective element in the numbers. You find it more by looking outside. What’s going to happen to the product? The consumer today focuses more on value, the brand loyalty is not there. There’s also the global element. Many of these smaller companies have outsourced labor in various places around the world.
Q: So you believe the numbers are less important?
A: Numbers are very important, but if you look strictly at numbers, you can make things add up. What are the concepts behind that number? If people understood more what the concepts were behind, say, Enron, they might have questioned a great deal more.
Q: Have these scandals affected the way you look at your portfolio?
A: It’s made us all aware that what you see might not be what you get, and so we have all become more questioning. But the sad part is everything has been brought down. People are scared, and so a rumor comes out about X, and the whole market is brought down in that section. The challenge is to figure out what has been brought down by the tide.
Q: Some major companies have been bruised recently by criticisms made by investment managers. Is this productive?
A: Corporate America is going through a real transition, as far as regulatory, accounting practices, disclosures, and there are probably a lot of things that can be done a lot better. But when you’re managing money you have an impact on the marketplace. With the sensitivity in the marketplace today, people have to be even more responsible if they’re in this industry.
Q: In your quarterly reviews, you often take on complex subjects, including the historical development of the Middle East. What is the purpose?
A: We have been doing that for 14 years, and from the very beginning our focus was to take issues that affected the investment world. It was really trying to provide information to our clients, not to promote our products. What good does it do? I guess the only thing I would say is knowledge is power, no matter what it is.
Q: You’re still known mainly as a bond manager, but stocks are a growing presence. Can you speak about the changing mix?
A: Many of us here have managed stocks in the past, and we think that the convergence of stocks and bonds is occurring in the capital markets. Sometimes you can slice the world not into stocks and bonds but into geographical areas. And the other thing that we’ve done a fair amount of work on is getting exposure to equity markets, to derivatives, managing a bond fund and then overlaying certain indices or futures.
Q: You’ve mentioned that stock and bond investment and analysis is converging. Why today and not in the past?
A: In the past 10 years there’s been a lot of creativity on debt securities structured products is the terminology. When companies need to raise capital today there’s a lot of opportunity both in the debt and equity area. Some debt securities are equity-like, and some equity securities are debt-like, and the markets are recognizing this. When earnings hit and the stock goes down, many times the bonds also get hit. So investors are looking at things by the company as a total entity, whether you’re looking at fixed income, credit or the stocks.
Q: Five years ago, no one thought an independent investment manager could survive. Why was conventional thinking wrong?
A: There was one ingredient to the consolidations that had too little weight put on it: The investment management business is a personal service business. It’s a business of managing risk and knowing your clients, and the bottom line is the clients. With all the consolidation that went on, it appears the bottom line is not the client or the investor, but some financial goal. And many of these mergers have not been particularly successful. Some of them have been disastrous. But on the other side of the coin, we as a firm believed five years ago that we needed to have a critical mass to survive.
Q: What do you mean by “critical mass”?
A: It means having a focus, but you have to be global. Our focus continues to be investment management. We weren’t going to go into the custody business or insurance or hedge funds. But you need to have a presence in Europe or the Far East. We started that four or five years ago, and today we have $40 billion in assets under management. We have an office in London, a joint venture in Europe, a presence in Dublin. I think we’re the largest independent bond manager now that there’s been so many mergers in the U.S.
Q: Why do the big firms think they need to offer customers an array of services, and why do you think customers don’t want it?
A: A lot of investment management firms were bought up by others by investment bankers, insurers, bankers, what have you because they recognized it’s an annuity stream of income, while many of the other elements of their businesses were transactional. Now, as far as managing assets, the cross-selling of products hasn’t been terribly successful. Just think of other professions. If you’re going to trial you have a trial lawyer. If you’re going to have brain surgery you don’t go to an orthopedist. And I think that some of those similarities exist if you’re managing money.
INTERVIEW: Joan Payden
Title: President and Chief Executive
Organization: Payden & Rygel
Born: New Haven, Conn.
Education: Bachelor of Arts, math and physics, Trinity College, Wash., D.C.; Advanced Management Program, Harvard Business School
Career Turning Point: Being laid off in her first job as a chemical engineer
Most Admired People: Her parents
Personal: Single
