On Thursday, Nov. 21, Artisan Partners announced that it has hired Waddell & Reed fixed-income portfolio manager Bryan Krug to start a brand-new investment team focusing on a credit opportunities strategy.
Krug, who is expected to join Artisan by the end of 2013, will start Artisan's sixth autonomous investment team. With the hire, Krug, who has 14 years of investment industry experience and seven years of experience as a portfolio manager, stepped down as lead manager of the $9.8 billion Ivy High Income (WHIAX).
The move is significant for Artisan, which has not started a new investment team since 2006. Of its five existing teams, the managers of three of them--its U.S. value, global value, and global growth teams--have won the Morningstar Fund Manager of the Year award at least once. In addition, a number of Artisan's existing strategies are at or near capacity. Six of its 13 mutual funds are closed to new investors. In the case of a seventh mutual fund, the other channels for that strategy (separate and institutional accounts, and so on) have already closed to new investors, though the fund remains open.
Now, Krug is set to launch a new credit opportunities team at Artisan in early 2014. According to a release, Krug will have "the flexibility to develop a team in a way that fits his own unique investment beliefs and process." Indeed, Artisan's teams vary in size depending on the team leaders' preferences.
Meanwhile, Ivy Funds has announced that William Nelson, the manager of Waddell & Reed Advisors High-Income , has taken the lead on Ivy High Income.
While Krug and Nelson both managed high-yield bond funds for Waddell & Reed, they did not work together. They also did not follow an identical process to build their portfolios. Krug managed a relatively aggressive portfolio and showed a willingness to keep more of the fund's assets in the lowest rungs of the high-yield bond market than did its typical peer. He also would venture into private placements when he saw an attractive opportunity. While typically a small portion of the portfolio, private placements carry their own unique risks.
In the past, Waddell & Reed had indicated Nelson managed a tamer portfolio that was better suited to Waddell & Reed's advisor distribution network, although it appears to carry a similar level of credit risk as evident by its sizable stake in lower-rated bonds. The rest of the analyst team supporting the two funds remains intact, but Krug's departure is a potential concern for Ivy High Income investors and possible changes to the process bear watching.
Krug amassed a solid record during his tenure, beating his benchmark and typical peer since he joined the fund in mid-February 2006. Investors noticed: Nearly $7 billion has flowed into this fund in the past three years, including $2 billion in the year to date through October 2013. At nearly $10 billion, the fund is one of the top-10 largest in the high-yield bond category. Navigating such a large asset base is no easy task, especially in a less-liquid market environment.
It will be imperative to assess Nelson's abilities to handle the risks, liquidity, and other issues that come with the sizable portfolio. Our analysts have moved Ivy High Income's rating to Under Review from Neutral as we gain a better understanding of how the fund will be run going forward.
Senior fund analysts Greg Carlson and Kathryn Spica and fund analysts Robert Goldsborough and Flynn Murphy contributed to this report.