Nancy Zimmerman: People, Process, and Fixed Income Arbitrage at Bracebridge Capital
Zimmerman discusses how fixed-income arbitrage identifies pricing gaps across related securities, and how changing instruments, market structures, and investor constraints can create opportunities. She emphasizes liquidity, stress-testing, and forward-looking portfolio construction, while noting risks around borrowing and the changing relationship between stocks and bonds. She also reflects on how process and people shape performance and sees substantial opportunity for young people entering markets.
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Read the Full SummaryKey Takeaways
Zimmerman’s arbitrage examples show how computing replaced manual price comparisons and supported searches for price differences between fungible cash flows on the U.S. Treasury curve and options on the same part of the curve.
Zimmerman says the number of instruments describing U.S. risk-free rates grew from three to 48 in the first three years of the curve, but she and David Swensen viewed guessing the direction of rates as a poor activity to combine with fixed-income arbitrage. She adds that competition for capital can be intense when rates are inefficient.
Zimmerman describes bond-CDS price imbalances as an arbitrage relationship and says crisis-era basis packages could immunize single-name corporate credit risk. Her rationale is that the probability of a company defaulting or paying should be consistent across its capital stack.
Zimmerman argues that constrained investors, narrow mandates, and market segmentation can create inefficiencies, while indexes can become strategies themselves. She points to backward-looking, positively serially correlated ratings, benchmark-driven passive investing, and ETFs’ mechanical creation and destruction of securities as sources of benchmark-related distortions.
TECHNOLOGY
“The way that they used to do this before this moment is they would make a piece of paper…”—
ECONOMY
“During that period where people are starting to relever, things come down, interest rates are low, central banks are keeping things low. There's many bonds issued.”—
MARKETS
“You learn a few things during crisises. You want to have liquidity, flexibility to be able to lean into dislocations, especially things where you know them well…”—
“Every crisis teaches and reinforces that you want to stress test. You want to think carefully about what factors could cause a draw down in your portfolio…”—
“At that time there were only three instruments describing US risk-f free interest rates. Now there's 48 in the first three years of the curve.”—
Introduction
Sides introduces the episode and frames Zimmerman's lessons from market crises: liquidity, flexibility, careful stress testing, and rigorous, curious people matter when dislocations arrive.
Guest introduction and episode overview
Sides presents Zimmerman, Bracebridge Capital's co-founder, and previews the firm's fixed-income arbitrage approach, portfolio process, team, current markets, and her Brown University involvement.
Nancy's early career at O'Connor and Associates
Zimmerman describes how a canceled summer job led her to O'Connor, where she learned options pricing, arbitrage, modeling assumptions, and the value of technical rigor.
Move to Goldman Sachs proprietary trading
After the 1987 crash, Zimmerman joined Goldman to build a Treasury-options platform, discovering that proprietary trading and explaining market flows most engaged her.
Founding Bracebridge with David Swensen
Zimmerman recounts meeting David Swensen, launching Bracebridge with Gabe Sunshine and Yale's backing, and learning to move from pricing securities to constructing an investment portfolio.
Bracebridge value proposition today
Bracebridge aims to deliver genuinely diversifying, uncorrelated alpha by finding pricing gaps between related instruments and developing deep expertise across rates, structured products, corporates, and emerging markets.
Evolution of four strategy areas
Zimmerman traces the growth of mortgage, corporate-credit, emerging-market, and developed-market rates strategies, explaining how new instruments and market structures created arbitrage relationships.
Why inefficiencies persist in markets
She argues that inefficiencies persist because constrained investors, mandates, benchmarks, ratings, passive funds, leverage, and market crowding can distort prices.
Evaluating and filtering opportunities
Bracebridge finds opportunities through expert, curious investors working with data and market knowledge; Zimmerman illustrates this with a structured, hedged loan to a cash-constrained REIT.
Portfolio construction process
The firm evaluates whether a trade is arbitrage, its catalyst and exit, capital needs, and alternatives, then builds a forward-looking portfolio using correlation analysis, stress tests, and concentration limits.
Lessons from market crises
Zimmerman says crises teach investors to preserve liquidity, stress-test drawdowns, distinguish losses from permanent impairment, and understand reliance on institutions and counterparties.
Identifying and hiring talent
Bracebridge seeks curious, rigorous, humble people who enjoy puzzles, challenge their ideas, collaborate, and stay engaged; Zimmerman emphasizes people as central to the firm's success.
Incentive alignment within the firm
The firm aligns senior employees with investors through personal investment, performance-linked compensation, and incentives to collaborate and create reusable tools for colleagues.
Sizing capital to opportunity set
Zimmerman says the opportunity set—not the firm's appetite for growth—should determine capital deployed, and candid communication helps maintain investor relationships through quiet periods.
Ideal deployment environments, hyperscalers
She sees opportunity in unusual developed-market rates and hyperscaler borrowing, where enormous issuance, diverse obligations, and changing sources of bond demand create complex relative-value trades.
Liability management and corporate game theory
Corporate liability-management situations involve legal rights, capital structures, borrower constraints, and strategic behavior as well as quantitative relationships; investors need compensation for that complexity.
Brown University Investment Committee experience
Zimmerman describes Brown's investment committee as a window into endowment stewardship, asset-liability management, changing stock-bond correlations, and the pressures behind investment decisions.
Closing personal questions
Asked about life beyond work, she mentions parenting and continued service at Brown, then recalls early jobs and identifies Swensen and Gabe Sunshine as key professional influences.
Marriage to Andrei Shleifer
Zimmerman describes meeting economist Andrei Shleifer and values his intellectual curiosity, while reflecting on the university's lasting educational and personal influence.
Advice for entering the industry
She encourages young people to enter markets, where they can contribute and learn quickly, and concludes that performance depends on the combination of sound process and good people.
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Important Disclaimers
Not Investment Advice: For education only — not financial, tax or legal advice.
AI-Generated: Made by AI from source transcripts and may contain errors.
No Guarantees: Past performance does not predict future results; investing carries risk.
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