John P. Calamos Sr. is Chairman and Global CIO of Calamos Investments, a firm he founded in 1977. With origins as an institutional convertible bond manager, the firm has grown into a global asset management firm. Mr. Calamos has established research and investment processes centered around a team-based approach designed to deliver superior risk-adjusted performance over full market cycles.
With 49 years of industry experience, Mr. Calamos is often quoted as an authority on risk-managed investment strategies, markets and the economy, and he has authored two books on convertible securities. Mr. Calamos received his B.A. in economics and an MBA in finance from the Illinois Institute of Technology. He joined the United States Air Force after graduation where he served as a combat pilot during the Vietnam War and ultimately earned the rank of Major.
In this exclusive 3,521 word interview with the Wall Street Transcript, this award winning 50 year veteran of the equity markets details the investment process for convertible bonds.
“They need capital. When they issue a convertible, they’re getting access to capital and because they’ve given the holder of the convertible the right to convert to the underlying common stock, they’re able to lower the coupon. So the trade-off is, you — the buyer — get a lower coupon. But now, you have the right to convert to the underlying common stock at your option whenever you want.
Basically, you have some of the equity upside, and because it’s a bond, you have the downside protection of the bond. So you get that upside versus downside. Because they issue it with an option, there is a premium. If the stock price is X, the premium might be around 20% to 30% above that. And the way we look at the convertible, it gives you the upside of the equity market, but it gives you protection on the downside.”
The upside is provided by the growth potential for the specific issuers:
“from the point of view of the biotech area, issuing convertibles is very interesting. They have ideas there; they need capital to execute. So we’ll see them do it — BioMarin Pharmaceutical (NASDAQ:BMRN), Allscripts Healthcare (NASDAQ:MDRX). There are interesting companies on the health care side that are utilizing convertible securities.”
Get the full detail on the John Calamos investment process in this 3,521 word interview in the Wall Street Transcript.
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