While entrepreneurs generally are regarded as risk-takers, municipal bond investors are not — including Tom Hession, a 29-year veteran of the industry and founder of Riverbend Capital Advisors. So, what was the impetus behind this muni bond investor’s decision to trade in the stability and familiarity of a job at Merrill Lynch for the opportunity to launch Riverbend?
In this blog post, Tom talks about some of the personal and professional experiences that shaped his career and ultimately led to the founding of Riverbend.
Prior to founding Riverbend, you spent 14 years at Merrill Lynch. What motivated you to make the leap from employee to founder?
TH: At Merrill Lynch, I worked on the institutional side of the business. From this vantage point the muni bond market appeared to be two-tiered. On one level are institutional investors who benefit from active management of portfolios, receive fair and competitive execution on trades, and have broad access to primary and secondary offerings. On the other tier are retail investors who typically are left with passively managed portfolios, frequently are subject to egregious price markups, and generally have limited choices other than their brokerage firm’s inventory. Seeing the need and opportunity to bring an institutional approach to individual and family office investors and their advisors, I launched a boutique asset management firm focused on the municipal bond market.
"Seeing the need and opportunity to bring an institutional approach to individual and family office investors and their advisors, I launched a boutique asset management firm focused on the municipal bond market."
Was Riverbend your first entrepreneurial experience?
TH: Between college and graduate school, I started a t-shirt screen printing business with some college friends. During college we sold t-shirts door to door to students, but after graduation we pooled our own money and borrowed capital to buy equipment and obtain warehouse space. We branched out into printing t-shirts for restaurants, bars, and record companies. We didn’t really know what we were doing but we made it work. I was able to support myself for four years before leaving the business to go to grad school. One of the founding partners in the business still owns it and now prints shirts for the Super Bowl and other big events.
Every entrepreneur acknowledges that launching a business comes with a certain amount of risk. Arguably, you took an even greater risk by founding Riverbend in 2011 in the wake of the global financial crisis. How did you rationalize this additional risk?
TH: I had good fortune and good relationships on my side. In the midst of planning my departure from Merrill Lynch, I was contacted by a friend at O’Brien International, a Chicago family office derived from the R.J. O’Brien company. The O’Brien’s are a successful, charitable family with whom I personally had been acquainted for several years. They wanted to make an allocation to munis and called me in search of specialized expertise. The timing was coincidental and fortuitous. After my resignation from Merrill and several follow-up meetings with this family office’s decision-makers, including John O’Brien, the family patriarch, the O’Brien’s became a strategic partner in the firm. This partnership enabled us to quickly build credibility and respect.
"I had good fortune and good relationships on my side."
Municipal bonds are relatively low on the risk spectrum. However, even within this so-called “safe” asset class, you tend to be risk averse. What’s your philosophy on risk?
TH: Many of the clients we work with allocate to munis as a way of balancing out risk they’re taking elsewhere. Muni bond portfolios are generally not a place where they want to roll the dice. With this in mind, we treat client portfolios as the “safe money” allocation. Even within the investment grade spectrum, there are sectors we avoid because of project-specific risk. Nursing home facilities and convention centers are examples. The general idea is that Riverbend is conservative and focuses on high-quality bonds.
Outside of launching and managing a boutique asset management firm, what are some of your greatest adventures?
TH: Two of my most thrilling adventures happened by accident. One was a whitewater rafting trip through the Grand Canyon with two of my sons. I had never been rafting and signed up for the trip thinking it would be a leisurely float down the Colorado River. It turned out to be a wild ride through class four and five rapids, completely out of my comfort zone. The other adventure was a skydiving excursion I agreed to go on with my wife. We were only dating at the time and the excursion was part of an outing for her company. I didn’t want to be perceived as being a chicken, so I went through with it. It was both terrifying and traumatic, especially considering that I have never been on a roller coaster or even a ferris wheel in my life.
Besides vowing to never jump out of an airplane again, are there any adages by which you live?
TH: That was definitely the end of my skydiving career. Mike Tyson once said: “Everybody's got a plan until they get punched in the face.” My interpretation: Be prepared for things not to go as planned and be resourceful. I’ve drawn from that notion over the course of my life, and it has served me well.
"Be prepared for things not to go as planned and be resourceful."
What are some of your interests outside of work?
TH: I like to golf and work in my yard, but I live in suburban Chicago where the warmer season is relatively short, so when I’m not able to be outside, I enjoy reading — mostly non-fiction. A recent favorite book is John Newton: From Disgrace to Amazing Grace, an autobiography about an English slave trader who became an Anglican minister, a hymn writer, and later a noted abolitionist. John Newton is best known for writing the hymn “Amazing Grace.” The book is a fascinating chronicle of his life and the reform that ultimately led to his crusade against slavery.
I also enjoy spending time with my family. After years of shuttling my five kids to their sports and activities, they’re older now and we’re finding more opportunities to golf together as a family. I was in my 30s the first time I picked up a club while my kids have become better golfers than me in just a short amount of time. A low hurdle!
If your career as a professional investor hadn’t taken off, what might have been your “plan B”?
TH: I would have liked being a teacher. As I’ve watched my children make their way through school over the years, I’ve been amazed at the rapid progression in which children develop and learn. A subject I’m particularly interested in and that’s somewhat related to my undergraduate studies is history — especially American history (editor’s note: Tom graduated with a B.A. in political science from the College of Holy Cross). The way the world is currently can be traced to past developments. If you don’t know history, it’s difficult to understand the context for what’s happening today.
My career clearly took a different direction, but I do still have the opportunity to “teach” investors. For example, in 2022, the bond market was down further than many of our clients have ever experienced, so I spent a lot of time talking with them about the factors contributing to the downturn in hopes of helping them better understand the rationale for the decisions we’re making in their portfolios. I've always felt that clients are happier and more appreciative of what we're doing for them and where we’re investing if we help them understand what’s happening in the market and why.
There’s more to Tom’s story. To hear it, and to learn about Riverbend’s differentiated approach to investing in munis, join him for a live webinar on January 19th at 2pm EST.
