Introduction
A veteran of Wall Street whose research on fixed-income securities revolutionized the market’s understanding of bonds, Martin L. Leibowitz is a current senior advisor and former Managing Director and Vice Chairman of Research at Morgan Stanley. He co-authored the textbook Inside the Yield Book, which is considered a cornerstone of bond-analysis research and remains the standard reference guide in the field. He has also authored more than 250 white papers and articles on various financial- and investment-analysis topics, 10 of which have received the Financial Analysts Journal’s Graham and Dodd Award of Excellence.
Leibowitz has received numerous honors for professional excellence from the CFA Institute and in 1995, was the first inductee into the Fixed Income Analysts Society Hall of Fame. In January 2015, he was named “Financial Engineer of the Year” by the International Association for Quantitative Finance.
Leibowitz serves on the Board of The Rockefeller Foundation and on the investment advisory committees of Singapore’s Sovereign Wealth Fund Global Investment Corp., the Institute for Advanced Study in Princeton, NJ, the Carnegie Corporation, and the IMF pension system.
He received his Bachelor’s and Master’s degrees from the University of Chicago, and a PhD in mathematics from New York University’s Courant Institute.
How does your current role at Morgan Stanley fit into your established career in finance?
Working in finance for so many years, I’ve witnessed real market milestones. The development of new equity products, historic highs and lows in the stock market, and the global economy’s rebound after the 2008 financial crisis. Along the way, I’ve managed over $300 billion in equity, fixed-income, and real-estate assets, as well as covered global fixed-income and equities research. I had to run the money, so to speak. At Morgan Stanley, I’ve been given free reign to study and resolve questions about higher-level fixed-income theoretical issues, that take more than just “little math” to discern. There are so many problems to solve and I feel like I’ve only scratched the surface. Fortunately, many of the firm’s clients are interested in these questions as well, so this research benefits everyone, in terms of what these answers will reveal and how they’ll guide us during future periods of instability.
Where do your best ideas come from?
Three major sources: First, when talking with clients, I’ve always learned about all kinds of investment and market issues that really deserve further study. Second, I’ve had the privilege of participating in many stimulating discussions while serving on the investment committees of several endowments, foundations and pension funds, in addition to being a major advisor to a sovereign wealth fund. Third, my years as a chief investment officer at a large investment and insurance firm left me with a host of other unanswered questions that I’m still thinking about.
How do you think your role as a researcher informs your interactions with clients?
I think that most clients have grappled with at least one or more of the same topics that I’ve studied, which is a definite advantage. My time on the “buy side” of the financial world really helps me to appreciate where clients are coming from, and how I can best help them.
What do you think we have learned since the 2008 financial crisis?
Definitely the importance of asset diversification. But that said, even standard forms of diversification may not be enough, given how a really adverse market can drive certain types of asset classes to levels much lower than originally expected.
For most funds, the real risk is not just volatility, but the prospect of another 2008-like event that could prevent most funds from staying on course and fulfilling their fundamental objectives. One example might be a value-and-liquidity-destroying incident that could persist over a significant span of time. For now, we’ve been very fortunate that the markets have strongly rebounded since the crisis.
What do you consider your most significant accomplishment thus far?
Without question, advising clients. Whether they're representatives of endowments, pension funds, or families, there’s always a fair amount of learnings that go back and forth on subjects like equity valuation, asset allocation, and beyond. I’m also proud of the research that I’ve done, especially that which benefits students of the markets. The textbook that I co-authored has been reprinted over 20 times, and is now in its third edition. Also, a collected volume of my papers, Investing, was published in 1992, which I hope will be of further interest for those who study financial and investment analysis.
What do you enjoy most about your role at the firm?
Helping individual clients reconsider their asset allocations to plan for life events or just to make better long-term investing decisions has always been my most gratifying experience. People are living longer, and everyday expenses continue to increase, so it’s critical for everyone to determine their own level of spending power, as well as remain cognizant of their own reserves.
In a previous role, I had the opportunity to listen in on a financial-planning helpline and overheard a representative break the news to a client that she wasn’t going to have enough in her asset portfolio to retire. She sighed and very sorrowfully, said that she was “going to have to work a few more years.” For me, that conversation certainly inspired empathy, but also reinforced the notion that financial advisors need to consistently get into the thinking of their clients to plan the best individual strategies. I was always so satisfied whenever I felt that I achieved that goal. No matter how large or small the client, that's always the case.
