Lord Abbett chief says crisis will expose funds ‘too aggressive on yield’

Like many finance executives, Doug Sieg, managing partner of US asset manager Lord Abbett, had never chaired a Zoom meeting until a few weeks ago. But since the coronavirus pandemic triggered mass homeworking, video conferences have come to dominate Mr Sieg’s daily schedule.

From his home in the leafy New Jersey town of Summit, Mr Sieg leads crisis management meetings every morning and evening, alongside a daily conference with Lord Abbett’s partners and various other day-to-day business calls.

“I’m not totally used to staring at a screen all day — I had a bit of a headache for the first few nights,” he admits to FTfm over his umpteenth video call of the day.

But the 6ft 6in sports enthusiast has found ways of coping, including stopping to play a 30-minute game of basketball with his family every afternoon. The father of four, who played as quarterback in his college football team until an injury put him out of action, has also kept up with his 5am daily workout since going into lockdown.

He is encouraging Lord Abbett employees to keep a distance between home and work to alleviate the stress that many of them are under. “This is a moment for empathetic leadership,” says Mr Sieg, who is dressed down in a casual pullover, a far cry from his normal office attire.

He recalls working through the crisis triggered by the 9/11 terrorist attacks. However, back then “the worst moment was the first moment and it was followed by this incredible rallying together of the country, whereas now we are watching it all unfold in slow motion and in isolation”.

The coronavirus emergency and its reverberations on individuals, companies and the economy is the first significant challenge Mr Sieg has faced since taking the helm at Lord Abbett, which manages $205bn in assets.

A life-long employee of the privately held group, Mr Sieg was named managing partner in 2018 after long being groomed for the role by previous incumbents Daria Foster and Robert Dow. The 51-year-old is only the tenth managing partner to preside over the firm since it was co-founded by Andrew Lord and Leon Abbett in 1929, just weeks after the stock market crash that led to the Great Depression.

Just like at the firm’s foundation, warning lights are again flashing for the global economy. Yet Mr Sieg is bullish about prospects for Lord Abbett, which has been one of the few active fund managers to hold up against the incursion of passive funds in recent years. Capitalising on record investor demand for bond funds, the fixed income specialist pulled $27bn in net flows last year and ranked as the best-selling US active house, according to Morningstar data covering mutual funds.

However, last month’s market rout caused a reversal of fortunes for bond fund managers as investors dumped their holdings and fled to the safety of cash.

Lord Abbett’s exposure to areas such as high-yield and low-rated corporate bonds, which have a higher risk of default, make it particularly vulnerable to outflows and performance losses. Falls in the value of bonds issued by two US energy companies hit its short-duration income fund last month, wiping out most of its year-to-date returns in just one day.

The firm has also made questionable bets on companies such as WeWork, the crisis-hit co-working company. It was the largest holder of WeWork’s junk bonds as at the end of May 2019, owning $44m, according to Bloomberg.

Declining to comment on WeWork, Mr Sieg points to Lord Abbett’s philosophy, which involves designing funds that deliver over the long term. The firm maintains a relatively small fund range so it can focus on the quality of its strategies.

This, combined with Lord Abbett’s well-established ties with US distributors, position it well for the future, he says. “We came into this crisis in a position of strength, so we shouldn’t assume we won’t come out of it stronger.”

He admits that the interest rate cuts made by central banks to combat the crisis pose questions for Lord Abbett, whose leveraged loan fund has been badly hit by the shift in US monetary policy. “We need to think about what products are appropriate for the low-interest rate environment,” he says.

Despite suffering initial outflows, he says Lord Abbett returned to inflows in the last few days of March, with investors buying back into its equity funds.

The current crisis will expose funds that are “too aggressive in their search for yield”, says Mr Sieg, pointing to areas such as private credit and real estate investment trusts. “We just lived through a rapid fire deleveraging. When all is said and done you may see funds and products that stretched too far.”

It will also accentuate the problems of the “squeezed middle” in asset managers — which in Mr Sieg’s vocabulary does not refer to midsized companies but to groups that are caught between highly active fund management and passive investment. “The new stuck in the middle are the asset managers that don’t quite have the investment performance to succeed and can’t really develop the scale to thrive as an index fund provider.”

He says that despite being dwarfed by its larger rivals, Lord Abbett stands out because of the strength of its products and distinct organisational culture. “Alpha generation isn’t about scale, it’s about relevance,” he says.

In line with his optimistic vision for the firm, Mr Sieg has told staff he is confident that there will be no lay-offs as a result of the crisis. He has also vowed to press ahead with hiring. “Investment businesses are all about people. When markets bring asset values down, they can also bring them back up and that’s when you need people who can manage the money or bring in money.”

Since taking the helm at Lord Abbett, Mr Sieg has sought to modernise the 91-year-old company and strengthen its links with its local community in Jersey City. He brought in the firm’s first head of diversity, James White, and introduced principle-based HR policies, such as allowing employees to take as much time off as they need each year, relaxing the company dress code and facilitating homeworking.

Mr Sieg says that this system has helped empower staff and improve their performance. “If I could get our company manual down to three things it would be: dress appropriately, do your job and love the firm as much as I do,” he says.

The current crisis has only reinforced the company’s belief in the power of remote working, he adds. It has also given fresh impetus to Lord Abbett’s philanthropic efforts.

After donating $1m to the Jersey City Medical Center to fund a new maternity wing last year, the firm and its partners are pledging money to support the hospital in the fight against coronavirus. “The amazing brave medical staff who are treating patients every day need resources,” says Mr Sieg. “Just like the brave firefighters who went into the World Trade Center on 9/11, they are on the front line of this war.”