IR+M: A Rare Fixed-Income Boutique

In our mission to provide our clients access to best-in-breed asset managers, Harbor frequently partners with boutique investment firms because, in our view, they possess traits that we believe tilt the odds toward investment success.

Finding attractive boutique firms is challenging in every asset class, but it is especially so in the fixed-income arena. The resources required to support a rigorous, research-oriented process covering the vast fixed-income universe are substantial. That stacks the odds against the formation of small upstart firms, which are more common in the equity space. We believe that’s one big reason why the bond market is dominated by giant companies that are among the largest asset managers in the world. While these large firms certainly have ample resources, we believe there are problems that can come with size, such as bureaucracy, distractions, competing incentives, lack of team cohesiveness and philosophical alignment, among others.

It is rare to find a firm large enough to support a robust fixed-income process, yet small enough to have the advantages that we see in boutiques. That’s why Harbor is so enthusiastic about its partnership with IR+M, which we view as a rare fixed-income boutique.

Here are examples of some of the appealing boutique attributes that drew us to IR+M:

• Boutiques focus solely on investing and quite often specialize in a single asset class or strategy type. IR+M is a fixed-income specialist, focusing almost exclusively on the sectors in the core and core-plus bond universe. We believe specialization avoids bureaucracy and minimizes distractions. It also allows the investment team to stay philosophically aligned around a single house process. IR+M’s philosophy is grounded on a clear understanding of the market anomalies they intend to exploit, and the entire team is clear on their methods for doing so. Furthermore, IR+M invests solely in cash bonds, unlike the large players in the core-plus space. In our view, this results in more transparent portfolios, which in turn makes performance attribution more straightforward.
• The ability to focus on a single approach attracts passionate, like-minded investors to join the firm, and it can also promote team stability. IR+M is no exception. Their team is cohesive and experienced. The average tenure on the team is 13 years. Senior team members have navigated several credit cycles, giving them the perspective to assess credits in a variety of market conditions. The team is large enough to carry out detailed credit research, but small enough to foster close communication and avoid bureaucracy.
• Boutiques often have ownership structures that foster a strong fiduciary ethic. IRM is a privately held and independent, with ownership spread across the firm. Because management and investment team members are owners, their interests are closely aligned with clients – they win when their clients win.

Harbor offers two ways to benefit from IR+M’s boutique advantage:

Important Information

The views expressed herein may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice or a recommendation to purchase or sell a particular security.

There is no guarantee that the investment objective of the Fund will be achieved. Stock markets are volatile and equity values can decline significantly in response to adverse issuer, political, regulatory, market and economic conditions. Stocks of mid cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.

Indices listed are unmanaged and do not reflect fees and expenses and are not available for direct investment.

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