Huntington Beach’s Allegiance Capital Inc. is Orange County’s other bond investor.
The investment firm has nearly $5 billion in assets under management for pension funds, endowments and foundations.
Allegiance invests in government and corporate debt and bonds tied to mortgages and other assets.
In most other markets, Allegiance could be king. But in OC, it’s in the long shadow of Newport Beach-based Pacific Investment Management Co.
Pimco is the best-known bond fund manager with nearly $700 billion under management.
If the returns are there, investors will come, Allegiance’s President Mark Torline said.
“People hire us to do better than what most U.S. bonds do,” he said.
The firm’s strategy is to achieve what the industry calls “total return”,making money not only on the interest bonds produce but also on price swings by buying low and selling high.
Allegiance has about 200 institutional clients. Sweden’s Volvo AB and France’s Soci & #233;t & #233; Bic, maker of Bic pens, are among them.
The firm has grown steadily since its 1988 start, according to Torline.
“We started with zero assets,” he said.
From Allegiance’s downtown Huntington Beach office, surfers can be seen gunning for big waves out the window.
But little outside is noticed from the trading room as eyes remain glued to changes in bond quotes on dozens of computer screens.
Traders arrive each day at 5 a.m.
“It’s a demanding environment,” Torline said. “We keep a scorecard at the end of each day.”
Employees own the firm. Thirty-three out of the 40 workers control 61%. Institutional investor Rosemont Partners LLC of West Conshohocken, Pa., owns about 30% of the company.
Would Allegiance ever be up for sale?
“Two or three times a year we get interest from institutions that want to buy us,” Torline said. “We’re not intent to sell. But if an offer made sense, it could happen.”
Allegiance’s benchmark is the Lehman Aggregate Bond Index, which is made up of U.S. Treasury bonds, corporate bonds, mortgage-backed securities and asset-backed securities.
In the past year, Allegiance has matched the index’s 3% to 5% returns.
“An environment of rising interest rates makes things difficult for us,” Torline said.
The firm may turn over 200% to 400% of its portfolio in a year to try and beat Lehman’s index.
Unlike Pimco, Allegiance deals only with bonds issued in the U.S. It still tracks what’s going on abroad, Torline said.
“When I came into the business, and up until a few years ago, global awareness wasn’t important,” he said. “Now I have to have better knowledge of what’s going on around the world because it has an effect here.”
Rather than spreading money among different bonds and sectors, Torline said he wants to focus on a few to improve his chances of maximizing returns for investors.
He said he sees opportunities with commercial mortgage bonds and other debt with higher returns.
“But all fixed income players are looking to do the same,” he said.
Allegiance isn’t dependent on what the Federal Reserve does with interest rates, Torline insists. But, like the county’s other big bond fund manager,Pimco’s Bill Gross,he has his opinions.
“The Fed is probably on hold for awhile (raising interest rates) and could ease due to a slowdown,” he said, echoing the sentiments of Gross.
