03/28/2014

Celebrating Our 30th Anniversary

by

Our History, People and Distinctive Strategy

Diana P. Herrmann, President & CEO, Aquila Investment Management LLC

Diana P. Herrmann, President & CEO, Aquila Investment Management LLC

Lacy Herrmann, Aquila’s founder, was one of the earlier pioneers in money market funds beginning in the mid-1970s. By the early 1980s, a handful of state-specific municipal bond mutual funds were being offered in states with large populations and higher tax rates, such as California, New York and Massachusetts.  Mr. Herrmann was intrigued with the concept of launching similar funds in other states.

Since the inception of Aquila Management Corporation 30 years ago, Aquila Group of Funds has grown into a nine-fund family with seven state specific municipal bond funds, a high-yield corporate bond fund, and an equity fund.  Through the years, however, Aquila has maintained its shareholder- and advisor-centric approach, as CEO, Diana Herrmann explains.

You’ve witnessed the growth of Aquila Group of Funds, and at the same time, you’re very involved in industry organizations, so you have a broad perspective.  What makes Aquila Group of Funds unique?

Our local character makes us distinctive. That local emphasis was integral to the creation of Hawaiian Tax-Free Trust, our first municipal bond fund, and still reflects how we’re structured today. In each of the seven states where we offer a municipal bond fund, we have locally-based portfolio managers, representatives, and board members.

Because they are located in each state, the portfolio managers of our municipal bond funds are attuned to the nuances of the local municipal markets—the economy and policy decisions. They’re in a better position to “kick the tires”—visiting individual projects, monitoring economic developments, staying familiar with local officials responsible for managing budgets, and observing the mood of the electorate as various projects are put to a vote.

Our local presence also helps us understand the markets and the people we serve.  We’ve found time and again that being local helps with everything from conducting due diligence on investments to developing relationships with advisors and shareholders.  And, I think the feedback we receive and our growth validates this strategy.

How does local insight translate to the high-yield bond and equity funds, where you’re investing across the U.S.?

Clearly, high-yield corporate bonds and equities don’t have the state-specific traits of municipal bonds. But, from a research perspective, there is an element of our “local” approach here, too. We’re fundamental managers with a research-intensive approach that emphasizes on-site visits. We go beyond the financial statements to really understand the debt structure, business model, and business execution of a company.  In that respect, and in our moderate approach to risk within the high yield and equity markets, our strategies are very much in synch.

What do you love the most about running the firm?

I love helping shareholders achieve their objectives, and interacting with them whenever possible.  To me, our business is all about our shareholders and their financial advisors.  We’ve always sought to connect with them, to understand their needs, and to provide high-quality service and a lasting benefit to shareholders and advisors.  It’s also very gratifying to know that together, we’re helping the local communities by financing important facilities and infrastructure, such as schools, hospitals and roadways, in the states where we manage municipal bond funds.

Our locally-based annual shareholder meetings are also distinctive, and have attracted hundreds of shareholders each year. We typically invite guest speakers to discuss the local and national economy, while portfolio managers discuss the current market situation.  Shareholders have the opportunity to ask unscreened questions and mingle with management, trustees, and portfolio managers.

We firmly believe that you learn more speaking with people face-to-face than you do over the phone or online.  Many of our shareholders feel a genuine connection with us, as we do with them.  That’s not common or easy in this industry, but when it happens, there’s nothing better.  It’s a very special feeling.