A Fly-Fishing Financier’s Guide to the Bond Markets

Bill Michaelcheck is eager to show me around his home away from home: Urban Angler, a shop for fly fishers tucked away on the second floor of a nondescript building a block north of busy 34th Street in Manhattan. The shop’s owner, the improbably named Jon Fisher, says the location is the third in his 29 years of running the business, pushed onward by rising New York rents. Michaelcheck goes to Urban Angler as much for the conversation as the latest gear — boots that self-tie or a new fly. The financier is such an avid fan of fishing that he gave his firm, Mariner Investment Group, a maritime-themed name.

Michaelcheck rose through the ranks of Bear Stearns as the bond markets transformed from a sleepy backwater to a complex sector, including the creation of mortgage-backed securities, that transformed finance. In 1992 he left Bear to start a family office that grew into Mariner. Starting with a multistrategy hedge fund, Mariner now oversees relative value investments in everything from government bonds and agency mortgage-backed securities to niche credit funds.

Michaelcheck, who spent the first five years after graduating from Harvard Business School in the asset management department of the World Bank, first learned to fly-fish from a guidebook that was part of a kit that included feathers and hooks to tie a fly — a generic term for what a fish eats — when he was 12. These days, ocean fly-fishing has become the center of a tight-knit community that includes a number of celebrities and well-known financiers like Pershing Square Capital Management’s Bill Ackman and Blackstone’s Tony James. A big part of Fisher’s business is arranging trips for clients to fishing lodges in exotic or far-flung locales like Patagonia, Alaska, the Seychelles, and even Mongolia. Michaelcheck’s entree into the sport was decidedly more modest.

“Growing up in Tennessee, I started out with worms, then went to lures, then flies,” he says. “In high school I even made my own flies. But I don’t anymore. That’s an art form that’s incredibly time consuming.” Michaelcheck, who has become good friends with Fisher, hustles me onward to the fly supplies section: rows and rows of arts and crafts materials for those who fish, including feathers, beads, and real as well as fake miniature fur pellets. He explains that flies have to meticulously match what the fish wants to eat on any given day, depending on barometric pressure, wind speed, and other variables. Fish aren’t fooled by the wrong hue or a slightly too-thick fly.

As we walk through the store, Fisher points out the library of fishing books and DVDs he has on hand, despite increasing competition from Amazon.com. Michaelcheck, Mariner’s CIO, laughs, saying he has about half of the titles, many of them Christmas and birthday gifts from his wife or one of his five children.

After a little prodding, Mariner’s founder becomes an enthusiastic storyteller, whether it’s about fly fishing or bond market investing. As Michaelcheck explains, the two pursuits have a common theme: sitting patiently, with a good deal of waiting and watching for events to unfold.

That’s what Michaelcheck is doing in his day job. After years of loose monetary policies that have kept interest rates near zero, central banks around the world are starting to change course. Michaelcheck says he is waiting for rates to go up and volatility to increase, and has changed his multistrategy fund’s portfolio as a result, pivoting from credit to government bonds and sovereign debt. Mariner continues to hold significant credit assets in its illiquid credit investments, including a regulatory capital relief fund focused on infrastructure and its collateralized loan obligation (CLO) business.

Although Mariner can’t predict the exact timing of the chaos, when it happens, the firm will be ready to go in and buy. Michaelcheck is expecting a regime change that he hasn’t seen since Paul Volcker, Federal Reserve chairman under President Jimmy Carter, raised rates in the late 1970s. (Volcker is also an avid fly fisher.)

After the World Bank, Michaelcheck moved to Wall Street, first joining John F. Eckstein III, a government bond trading pioneer who went bankrupt, before joining Bear in 1979. That’s the year that, over a weekend, Volcker raised rates, upending the investment world and ultimately sending the country into a recession. Until then rates had been stable. In those days, few people in the U.S. had quantitative skills to figure out what a bond was worth as interest rates rose or fell because no one had to, explains Michaelcheck. Suddenly, though, bond prices that had fluctuated at most by a few pennies, dropped to $0.60 or less for every $1.00. With huge losses at Wall Street banks, a generation of leaders retired and a new one came in, including Michaelcheck.

Interest rates fluctuated wildly during the early 1980s, but Volcker’s policies eventually worked, and rates that were in the high teens started their gradual and historic decline. Michaelcheck spent 15 years at Bear Stearns, mostly managing fixed-income trading and risk management, and working with legends like Alan (Ace) Greenberg. The Mariner CIO stayed until the firm went public — he retired for exactly two days, joking that there was only so much fishing he could do — and then set up the family office that became Mariner. The firm expanded by setting up trading teams that run different strategies.

“I am a talent scout of sorts,” Michaelcheck says. “We’re hiring the best talent we can find and then setting them up so they can go and invest. We’re not saying, ‘hey, mortgages are great,’ and then promoting someone here to go and do that.”

After the financial crisis, Mariner, like many hedge funds and asset managers, picked up the slack as big banks stepped back from lending and making markets as a result of new rules that limited their risk-taking. The most famous such rule was the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included the Volcker rule — named for the famous fly-fishing Fed chair — that prevented banks from proprietary trading.

Back at his office, Michaelcheck points to a statue on his desk. It’s not a Derek Jeter or LeBron James bobblehead doll. It’s a miniature Paul Volcker. “The Volcker rule is the best thing that ever happened to us,” he says. “Our biggest competitors used to be banks’ prop desks. They had the money and were once the big gorillas in the trading world. That’s changed.”

For now, Michaelcheck is waiting for a change in the markets. But after seeing multiple cycles play out, he remains calm. Whether he learned that from investing or from fishing is unclear, but he is certainly taking a more Zen approach to both these days. “After five to ten years of catching fish, you want to instead see the fish in the water. Now it’s about watching and observing, and patience.”