|  FEB 1995

Mary Pugh of Pugh Capital Management by Thom Hartle

Mary Pugh of Pugh Capital Management by Thom Hartle The year 1994 will be known for the debacle in the derivatives markets. But what are these instruments that seem to have left a number of money managers holding the proverbial bag? To answer this question and others, we spoke to Mary Pugh, former senior vice president of Washington Mutual Savings Bank and now a fixed-income money manager in Seattle, WA. We spoke to Pugh about the mortgage-backed securities market, how it works, what the instruments derived from mortgages are all about and more. Q: Mary, let's start with your background. A: Sure. I graduated from Yale University in 1981 with a bachelor's in economics. Then I joined Washington Mutual as an investment analyst. In 1989, I was named senior vice president of the portfolio management division. My responsibilities included overseeing the bank's investment functions, Treasury functions and secondary marketing. I brought Washington Mutual's first collateralized mortgage obligation, which is referred to as a CMO, to market. I also chaired the deposit and loan pricing committee and oversaw financial forecasting and investment operations. One of my key responsibilities was to manage the bank's interest rate risk. We used derivative products such as interest rate swaps, caps and financial futures. Then in 1991, I started my own money management firm for institutional clients, and we currently have $75 million under management. Q: I'll go out on a limb and say you're qualified to comment on the mortgage market! A: Thank you! Q: First of all, most people know that a mortgage is what they take out to buy their home. Describe the stages that this loan goes through to end up as a mortgage-backed derivative. A: A typical personal home loan is the easiest place to start. When an individual takes out a loan to purchase a home, he or she agrees to repay the loan on a monthly basis based on a specific interest rate. There's a typical amortization period; the most common is the 30-year fixed rate.

by Thom Hartle