Pyxis Makes a Break from Highland
March 2, 2012
The coming year is shaping up to be a fresh start for alternative mutual fund shop Pyxis Capital.
The Dallas-based firm, formerly known as Highland Funds Asset Management, L.P, has broken away from its parent, Highland Capital Management, L.P., taken on a new moniker and a new approach to creating alternative mutual funds, which bet on commodities, equities and fixed income products. Its investments play both the long and short side of the trade.
Highland currently bets on the credit products using a combination of long-short, event-driven and distressed-credit strategies. Highland also invests in collateral loan obligations, which are a diversified pool of senior secured bank loans typically financed through the issuance of AAA- to BB-rated debt and an equity tranche.
In comparison, Pyxis' current portfolio includes an energy and materials fund, a long-short healthcare fund, a long-short equity fund and a trend-following fund.
Money Management Executive recently spoke to Joe Dougherty, president of Pyxis, about the firm's rebranding efforts, its mandate and the growing interest among advisors and investors for alternative products.
Let's Make a Deal, or Two
Highland Capital launched its mutual fund business in 2004 with the acquisition of Columbia Asset Management's Floating Rate Advantage Fund and Floating Rate Fund as well as Columbia's Bank Loan Asset Management Group, the former advisor to the two funds. Internally, Highland also built a team of wholesalers to help support the funds.
"We looked at third-party distribution and servicing as well as having our own team and it was going through that exercise that we made the decision to go into the mutual fund business and really build the business out," said Dougherty.
Highland made another deal in February 2011, taking over as the new investment adviser for the GE Funds family, which included 16 mutual funds, 12 of which are actively managed funds. These funds served individual investors with approximately $1.2 billion in total assets. The GE Funds became a part of the Highland Funds family, which, at the time, consisted of a family of four other mutual funds with approximately $2.1 billion in total retail assets under management.
"From there we made a point to focus more on alternative strategies," said Dougherty.
To date, Pyxis' portfolio consists of seven alternative mutual funds, 12 traditional mutual funds and one closed-end funds. Top three long holdings in the Pyxis Long/Short Equity Fund include: Apple, Equinix, and Pioneer Natural Resources and its top short picks include Digital Realty Trust, Hansbrand and Mead Johnson Nutrition. The firm's more traditional Core Equity Fund currently bets on Apple, Chevron and Cisco Systems and its closed-ended Credit Strategies Fund has exposure to the retail, healthcare and aerospace sectors.
Going forward, Dougherty said the firm is looking to add additional alternative strategies, as well as an emerging markets fixed income strategy and a micro-cap equities offering to its lineup.
All told, the firm manages some $3 billion in assets, as of December 31, 2011.
More Products and People, Please!
Pyxis currently employs a sales team of some 22 people, including internal and external wholesalers.
There are 10-11 external wholesalers covering wirehouses, four in the independent advisor channel, a dedicated person covering institutional investors, one for private banks as well as two national accounts sales people, according to Dougherty.
He added that the firm is in the process of adding more service professionals to its sales and investor relations line to satiate investors' and advisors' growing appetite for alternative products. "Flow data in the mutual fund space for last year was underwhelming to say the least. But if you look at where the growth came, it was in a lot of alternative-tilted strategies," said Dougherty.
Moving the Alternative Glacier
"I think the flows are starting to go more toward alternative products but it's going to be more of an education sales process where we take the time to educate investors and advisors."
Pyxis' website includes a tool that allows investors and advisors to perform side-by-side comparisons of two separate mutual funds, closed-end funds, or exchange-traded funds, as well as a portfolio analysis tool to illustrate how a particular investment or group of investments can drive the performance of a portfolio.
Dougherty said his firm is seeing a lot of firms it works with increase their alternative allocation to as high as 45% per their entire portfolio. "I don't think this is moving at a glacial pace so the adoption is moving faster than a lot of people realize."
A Guiding Hand
So what's with the name change?
Dougherty explained that a lot of investors associated Highland Capital with fixed-income funds because of its history of betting on high-yield bonds and investment-grade bonds. However, Pyxis' mutual fund business manages a lot of equity funds and outside managers because of its manager-of managers structure.
"So we were starting to look so much differently than our parent that we started looking at a name change. As we went from four funds to 20 funds, we had to take that next step and push the business into its own brand so it was the right time to do it."
Pyxis is the Latin word for a mariner's compass and also is the name of a constellation in the southern hemisphere. Dougherty said the name plays up guidance in today's choppy waters where markets are unpredictable and finding answers for investors.
"It's a nice fresh start and this is really allowing us to create our own identities," he said.