ANNUAL REPORT 2020Taxable Fixed Income

We entered 2020 as we do every year, with a high degree of self-awareness regarding our strengths, the competitive landscape, our priorities for the year, and our position among our peers. Three months in, we shelved the play book and found ourselves adapting to survive in circumstances nobody could have anticipated, and which were changeable on a daily, weekly, and monthly basis. Our ultimate success in contributing record results for the division was a testament to the resiliency of our model, the dedication and creativity of our people, and the strength of our client relationships.

As both the COVID-19 pandemic and resultant economic shutdown each spread with global impact, it quickly became apparent how impossible it would be to frame the crisis within traditionally thoughtful assumptions regarding the dynamics of the markets. We witnessed unforeseen volatility and liquidity-driven capital flows in response to the certainty that this was a true crisis, and to the uncertainty regarding how it would ultimately play out. With strong client relationships, we were able to facilitate these capital flows while maintaining a relatively light balance sheet commitment. This phenomenon was most pronounced in the Emerging Markets, where global institutional investors liquidated positions which were purchased by localized in-market financial institutions. Over the course of the year, as markets stabilized and afforded the ability to assess opportunity, these same assets traded in reverse direction, from the locals back to global institutions, at higher prices. Prevailing low interest rates fostered an environment that was friendly to borrowers, and each sector of the Fixed Income markets saw record primary issuance. While this did not directly benefit us (as we are a largely secondary shop), the record primary issuance inured to our benefit in the increased trading activity associated with the new issues. 

Thematically, the Fixed Income Division was a “Tale of Two Cities” in 2020. The transactional businesses associated with private client services saw an overall decline of 20 percent, largely due to the increased complexity associated with that business under the enhanced regulatory auspices of Regulation Best Interest. Institutional business saw significantly more robust results, with increases ranging from 20 percent to 155 percent, across our various desks. In a year that saw our competition benefiting greatly by record primary issuance in Emerging Markets, Investment Grade, and High Yield, our performance as a division in reliance of secondary trading validates our model. This notwithstanding, we did mark a milestone on the primary front, bringing our largest Emerging Markets deal to date—a $600 million offering for the Republic of Honduras. 

More than ever, success in fixed income is driven by the delivery of exceptional capabilities and expertise that drive greater mind share, wallet share, and market share.

We continued to expand our business with the addition of experienced fixed income professionals and product specialists throughout the world and across asset classes. Bringing on new talent reflects the efficacy of our virtual recruiting process which enabled the seamless addition of high-value talent, despite ongoing COVID-19 disruptions. Our expansion aligns with our broader strategy of leveraging deep sector experience across key asset classes in order to successfully execute transactions on behalf of corporate clients and institutional investors. Equally important, we look forward to leveraging our new hires to capture significant growth opportunities through close collaboration with other business lines.

We will continue to build on the successes of 2020. While we have proven that we have the ability to serve our clients under adverse circumstances, we must acknowledge that efficiency and order will return to the markets and force us to compete vigorously with firms that rely on balance sheet and primary issuance for market share. To this end, we will continue our commitment to recruiting, after an especially productive year on that front in 2020. We also hope to make significant strides in the new products we introduced in 2020, as well as develop new capabilities in 2021.

The COVID-19 pandemic necessitated adjustments to how we do business, and it created challenges that we overcame by relying on our embedded corporate strengths and strong management. Ironically, the resultant success now presents us with challenges to our traditional business platform related to the colocation of people on a trading floor in a post-COVID-19 world, after demonstrating the effectiveness of a work-from-home model. While we benefit from a corporate culture which respects and rewards experience, it will be critical to facilitate the training of new employees in a manner particular to each desk and market we serve. These challenges are not unique to Oppenheimer, however, and we will most certainly overcome them and persevere in the future.