Mohamed El-Erian abruptly stepped down as chief executive of
Pacific Investment Management Co., the giant asset manager that has
struggled to hold on to investors as demand for its bond funds
wanes.
Mr. El-Erian, 55 years old, will leave in mid-March after seven
years at the helm of the Newport Beach, Calif., firm, which manages
$2 trillion as a largely autonomous unit of German insurer Allianz
SE.
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Bill Gross: 'I'm Ready to Go for Another 40 Years'
Following El-Erian's Resignation, Meet the New Guard at
Pimco
Move Caps Tumultuous 12 Months for Firm
Meet the New Guard at Pimco
Read the Statement
El-Erian's Letter
Bill Gross's Letter
His departure leaves Bill Gross, who founded Pimco in 1971 and
who oversees the world's largest bond fund, as sole chief
investment officer and the firm's primary public face.0
Pimco's effort to build a stock-fund business, launched under
Mr. El-Erian, has faltered just as investors are turning away from
bonds in search of higher yields from alternatives such as equities
and junk bonds. Mr. Gross's Pimco Total Return Fund suffered
industry-record outflows in 2013, when stocks posted their biggest
gains in over a decade.
The firm has also trailed competitors such as BlackRock Inc. and
Vanguard Group Inc. in expanding into index-based exchange-traded
funds, which are drawing investors dissatisfied with the
performance of active investment managers.
That contrasts with a few years ago, when investors poured
hundreds of billions of dollars into high-rated bonds following the
financial crisis, elevating the profiles of asset managers such as
Pimco and BlackRock.
Investors yanked a net $41.1 billion from the Total Return fund
in 2013, and Pimco's U.S.-listed mutual funds suffered $30.4
billion in withdrawals, their first since at least 1993.
"Equities seems to have been the area where [Pimco] has been
behind competitors," said Eric Jacobson, senior fund analyst at
Morningstar Inc. "Pimco has been very circumspect and deliberate in
adding that business line."
Pimco promoted Douglas Hodge to CEO, putting an executive with
experience in client relations and business back in the top
management role.
Mr. Hodge, who joined the firm in 1989, is currently Pimco's
chief operating officer. He previously led the firm's Asia Pacific
region from Tokyo.
Mr. Hodge represents a shift from Mr. El-Erian, whose background
is in investment and economics and who has been oft-quoted since
the financial crisis on markets and the economy.
Pimco is also promoting a new generation of fund managers in
naming Andrew Balls and Daniel Ivascyn as deputy chief investment
officers. Mr. Gross, Pimco's co-chief investment officer with Mr.
El-Erian since 2007, will become chief investment officer, the
company said in a statement.
"I'm ready to go for another 40 years!" Mr. Gross, 69, said in a
post on Twitter.
Mr. Ivascyn, in particular, has had a rising profile thanks to
his chart-topping performance at the helm of the $30 billion Pimco
Income Fund. Pimco Income is one of a growing number of
"go-anywhere" bond funds that have been attracting investors
looking for ways to play the bond market in a rising-rate
environment.
In 2013, Mr. Ivascyn's fund took in $7.8 billion in new money
from investors, having attracted $12.6 billion in 2012, according
to Morningstar. Pimco Income is up nearly 11% a year for the last
three years, a pace that nearly doubled the average returns of its
competitors.
London-based Mr. Balls was often the public face for Pimco's
views on the European debt crisis as head of the firm's European
portfolio management.
Mr. El-Erian joined Pimco in 1999 as managing director and he
was a senior member of Pimco's portfolio management and investment
strategy group. He left the firm to become chief executive and
president of Harvard Management Co., which manages Harvard's
endowment and related accounts, before returning to Pimco two years
later.
Mr. El-Erian will remain on the German parent company's
International Executive Committee and advise on global economic and
policy issues. In a note to Pimco clients reviewed by The Wall
Street Journal, Mr. El-Erian said that in addition to remaining on
the International Executive Committee, he "will also be doing some
writing, particularly on central banking and market related
issues."
"I have been extremely honored and fortunate to work alongside
Bill Gross, who is one of the very best investors in the world,"
said Mr. El-Erian in the statement. "I have also been amazingly
privileged to work with the most talented group of professionals in
the investment management industry."
Mr. El-Erian played an important role on the firm's investment
committee, which sets guidelines for Pimco's portfolio managers and
evaluates the strategies being implemented among individual funds,
said Mr. Jacobson of Morningstar.
Mr. El-Erian was "one of only a handful of people who likely
have had the right mix of traits necessary to strongly challenge
and help shape Gross's opinions," said Mr. Jacobson, who has
followed Pimco's funds for years.
Mr. El-Erian also served as a co-manager on Pimco's $2.3 billion
Global Multi-Asset Fund, which lost 8.4% in 2013, while the index
against which it measures performance rose 26.7%.
In recent years, Pimco has invested in divisions beyond its core
bond offerings, such as equities. In 2009, the firm hired Neel
Kashkari, who oversaw the Treasury's Troubled Asset Relief Program
during the financial crisis, to build a stock portfolio.
Building an equity portfolio has been slow going. The six funds
had $10 billion in assets under management when Mr. Kashkari quit
last year to consider a move into politics.
Mr. Kashkari, a Republican, formally declared his candidacy for
governor of California Tuesday.
(END) Dow Jones Newswires
October 10, 2017 09:49 ET (13:49 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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