Letter from CIO

A Letter from Mark R. Shenkman, Chairman and CIO

Mark R. Shenkman, Chairman and CIOTo all investors:

As one of the early pioneers in the high yield bond market, I have seen “monumental” acceptance of this asset class throughout the globe, since its modest beginnings in 1977. This once esoteric backwater of the corporate bond market has soared to over $2 trillion in market size, representing high yield bonds, bank loans, and convertibles. Many investors have included high yield bonds and/or loans in their portfolio allocations over the past decade.

High yield investments can provide a vital solution in asset allocation strategy. Besides the obvious goal of a higher current income stream, an appropriate allocation to the high yield market can offer both diversification and lower volatility than equities. There is a common misconception that all fixed income sectors are directly correlated to the U.S. Treasury market. While high yield bonds have the same characteristics as other fixed income instruments, such as a coupon, maturity and possibly covenants, high yield companies are “story bonds” where the financial condition of the issuer ultimately drives the valuation. Although interest rates may play a role in the daily price discovery, the probability of default or restructuring eventually drives the valuation.
At SHENKMAN CAPITAL, we believe the best way to avoid defaults and credit mistakes is to constantly undertake independent research. We analyze and evaluate the fundamental financial condition of each company before any investment is made. The greatest value-added that SHENKMAN CAPITAL provides its clients is our in-depth credit analysis, utilizing our proprietary credit methodology to identify mis-rated companies. Many portfolio managers rely on published ratings as their primary source of creditworthiness. At SHENKMAN CAPITAL, we pride ourselves on comprehensive research and a structured process to minimize credit problems in our portfolios. Credit research is the heart and soul of our investment philosophy!

For almost 30 years, the Shenkman Story has remained constant. Our investment philosophy, of preservation of capital and maintaining high risk-adjusted returns, has been the core of our style. Despite our size and success, we have upheld our basic values and culture. When clients select SHENKMAN CAPITAL for their high yield mandate, they know our conservative investment philosophy will be maintained under all market conditions. Talent, experience, and commitment are the cornerstones of our firm. Like the great monuments in the world, SHENKMAN CAPITAL has been built on a solid foundation of time-tested investment principles, where our ultimate goal is to serve the best interests of our clients each and every day.

Respectfully yours,

Mark R. Shenkman