Pyxis Capital: ‘Shift From High Yield to Floating Rate’

The firm has a history in hedge funds and distressed debt

High yield isn’t what it used to be.

“At the end of the day, high yield has had a wonderful run since 2008,” Brad Ross of Pyxis Capital told AdvisorOne at Schwab Impact 2012 in Chicago on Thursday. “It’s up about 115% since that time. So the client would get great yield and nice appreciation on the loan side.”

But now?

“Now we’re lightening up on yield and moving into the floating rate world,” he said.

“When we sit down and talk to clients, they don’t care if the investment choice is boring because they want to reduce volatility,” Ross, the firm’s president, added. “But they need to reach for alpha. Long-short strategies work well for that reason. You can take advantage of the upside with a predictable downside. You can get the alpha without stretching the risk band for the client.”

Pyxis Capital, headquartered in Dallas, is a SEC-registered investment adviser with 17 funds under management. Ross came to the firm from Ivy Funds, where he was executive vice president and national sales director. Ivy had $1 billion in assets when he joined in 2003, and $55 billion when he left last year to help start Pyxis.

“It was a flat organization, so I decided to try the alternative and floating rate space,” he said.

Highland Capital Management, the firm’s parent company, knows quite a bit about distressed debt, and has a legacy of operating in the space.

“We spun off Pyxis as a direct result of our hedge fund strategies. We wanted to move towards a more transparent product in a mutual fund. We have a focus on mitigating volatility and ensuring a predictable upside and downside. It’s very vanilla. You give up some of the upside to get the downside protection, which is what people want. The retail investor doesn’t want a complicated story.”

As for future growth, Ross said the firm currently manages $3 billion, which he’d like to grow to $10 billion over the next three to four years.

“I’ve done a total reorganization of the sales force,” he concluded. “We have 10 sales people now and I’d like to get to 20 RVPs in total.”

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