BlueMountain Capital Investor Letter – Looking for Easy Games in Bonds

BlueMountain Capital is a diversified alternative asset management firm with profeciency in credit markets. It is headquartered in New York while providing additional office in London. The fund was co-founded by Andrew Feldstein and Stephen Siderow six year ago. As per the most recent data we were able to attain, the fund holds approximately $17.4 billion in AUM. Recently, the fund has released a new Investor Letter in which its Director of Research, Michael J. Mauboussin examines a few important matters in detail, such as the shift from active to passive investing in bonds.

The shift from active to passive management remains one of the hottest issues in the investment industry. In this report we examine the shift from active to passive investing in bonds. The migration in stocks has received more attention than that in bonds because the move has been more dramatic. The transition in bonds has been less rapid because active bond investors have outperformed passive alternatives at a higher rate than equity managers have, even if much of that outperformance can be explained by exposure to risk premiums.

We document the shift by examining trends in assets under management and flows for active and passive taxable bond funds. Next, we describe the challenges that investors face in identifying skillful managers. We turn to methods for measuring easy games, including a comparison of popular bond and stock indexes and a consideration of the participants in the markets. Finally, we review the implications for asset managers and conclude with a novel framework for gauging the value that active managers generate.”

You can download a complete copy of new BlueMountain Capital Investor Letter here: