By Heather Gillers and Gunjan Banerji July 24, 2019 5:30 am ET A few behemoths are increasingly dominating the municipal market, helping to lower prices for many investors but also sparking worries about concentration and influence.
Individual investors can benefit from the concentration. By buying a share of a fund, rather than owning a single municipal bond outright, they increase diversification and can reduce their losses in case of a default. And as asset managers scale up, they pass down the benefits to investors in the form of lower fees, they say.
Much of the new money is flowing to the five biggest money managers, which oversee more than half of all assets in funds classified as high yield by Morningstar. Part of this is a result of consolidation. Invesco bought OppenheimerFunds in May, combining two of the biggest money managers that buy junk munis.Large money managers tend to buy more bonds and therefore develop closer relationships with underwriters selling bonds on behalf of state and local governments.
Filings in that case include transcripts of calls between Nuveen executives and municipal-bond departments at Deutsche Bank AG , Morgan Stanley and Goldman Sachs Group Inc. in which Nuveen threatens to cut off business relationships unless the banks boycott Preston Hollow.
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