Westside Junk Bond Shop Eyes Big Deals in Merger.

LARRY Post, founder of the Post Advisory Group, the Westside junk bond shop, confirmed last week that his firm is merging with Metropolitan West Financial LP, a big local money management outfit.

Post, who manages $500 million in junk bonds, said the merger will help him step up from running money for individuals and smaller foundations, to handling institutional dough.

"When you get $500 million under management, it's hard to really grow just by getting another (individual) account," he said. "You need some bigger chunks of money."

Post himself is a quiet sort, and never advertised.

"We never even went after institutions, and never had a marketing department," he said. "By merging, we get that. And I can still spend full-time on managing the money."

West Los Angeles-based Metropolitan West Financial is another one of those quirky, under-the-radar financial shops and yet it nonchalantly answers to managing almost $45 billion.

The lion's share of money that Met West manages, $30 billion, is in an arcane alley off Wall Street known as "securities lending." Many large institutional owners of stock plan to own their shares for a long time, and even in perpetuity, if you consider huge pension funds, such as Calpers (the state employee pension fund) or index funds, which continually hold stock in the S&P 500. Essentially, they buy and never sell. Met West acts as an intermediary, garnering shares from institutions, and then lending with interest charges to brokerages, which re-lend to short traders. Met West passes most of the interest collected through to the institutional shareholders, and keeps some.

But Met West also manages a portfolio of $12 billion in investment-grade bonds, and another portfolio of $1.7 billion in equities, according to Patrick Mitchell, managing director.

By the way, Post thinks the junk bond market is potentially at its most interesting juncture in 10 years. Yields on junk have soared to more than 800 basis points (8 percent) above similar-maturity government bonds, a level last reached in the Persian Gulf War days. A confluence of events -- including the fallout from the Asian and Russian flus of two years ago, some crumpling hedge funds (which liquidated junk portfolios), some bad underwritings (which bombed), and some outflows from junk mutual funds -- have combined to push junk bonds down, and push yields up, to record highs, said Post.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.