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Pimco's New Chiefs Seek to Calm Investors After Gross Departure

Sunday, 28 September 2014 12:01 PM

Pacific Investment Management Co., seeking to calm investors after the surprise departure of co- founder and former chief investment officer Bill Gross, said there will no major changes in investment strategy at the manager of the world’s biggest bond fund.

Pimco was initially focused on trading following Friday's announcement that Gross, widely considered the most influential bond manager, was leaving for Janus Capital Group Inc., Pimco chief executive officer Douglas Hodge said in an interview. The firm has since started reaching out to clients and distribution partners around the world in a bid to prevent large-scale redemptions.

“It’s business as usual,” said Scott Mather, one of three newly appointed managers of the $222 billion Pimco Total Return Fund. “We’ve all been part of the team as members of the investment committee.”

The departure of Gross, 70, triggered a selloff in the markets he favors, including U.S. Treasurys, credit derivative indexes and the Mexican peso, before Pimco announced late that day that Daniel Ivascyn, 45, will replace Gross as chief investment officer. The firm, which manages almost $2 trillion in client assets, may see withdrawals of as much as 30 percent, according to a report by Sanford Bernstein.

Succession Protocol

Gross’s exit set into motion a succession protocol, put in place after the resignation in January of former CEO Mohamed El-Erian, according to Hodge. The two had clashed over management issues and Gross’s leadership style, people familiar with the matter said at the time.

Pimco’s managing directors met and “by basically overwhelmingly unanimous consent,” confirmed Ivascyn as group CIO, he said. Pimco named Mather, Mark Kiesel, and Mihir Worah to take over management of Pimco Total Return.

Pimco’s leadership team convened a meeting with more than 300 employees present or video-conferenced in who deal directly with clients, walking them through the process of appointing the new management, according to a person who was present and asked not to be identified because it was private.

After Ivascyn was introduced, the group cheered and gave him a standing ovation, said Hodge.

“It was just extraordinary, just this outpouring of optimism and enthusiasm from our group,” Hodge said.

Hodge, Mather and Ivascyn declined to comment on the reasons Gross left.

The new management will keep the existing structure with annual forum and cyclical forums, investment committee meetings and regional portfolio committee meetings, all of which are “working very well,” Ivascyn said. The main changes, he said, will be in style.

Addressing Performance

“We’re going to share responsibility a bit more than we have in the past,” he said. “A way to describe that is we’ll be using the word ‘we’ a lot more than we have, hopefully, and hopefully we’ll emphasize team a little bit more.”

The firm needs to address both Gross’s exit and performance at the Pimco Total Return Fund, which is the largest fund held by 401(k)-type plans, according to San Diego-based BrightScope Inc., which rates retirement plans.

Investors have pulled money from the fund for 16 consecutive months, according to Chicago-based researcher Morningstar Inc., as recent performance trailed rivals and investors turned away from traditional fixed-income strategies in anticipation of rising interest rates.

The formerly top-ranked fund has seen its five-year performance against peers slip to the 62nd percentile, according to data compiled by Bloomberg. Total Return has climbed 3.3 percent this year, trailing 57 percent of its competition.

Gross unsuccessfully tried to halt redemptions and reassure clients, saying in May that Pimco funds will rank at the top again by year-end. His performance faltered this year amid wrong-way calls on U.S. Treasurys.

New Neutral

Pimco has been betting on a “new neutral” era characterized by global growth converging toward lower, more stable speeds and interest rates that remain below their pre- crisis equilibrium. That “framework” remains intact, according to Ivascyn.

“We strongly as an organization continue to believe in that fundamental view that economic growth is going to be below expectation,” and that as a result, central banks won’t raise interest rates as fast as had been forecast, he said. While they’ll “continue to adjust” that thesis as the situation changes, he said, there will be “no radical changes there as well.”

Pimco had named Ivascyn one of six deputy chief investment officers in January in the biggest management overhaul in its history after the surprise departure El-Erian. Ivascyn, who runs the $38 billion Pimco Income Fund, has beaten 99 percent of his peers over the past three and five years, according to data compiled by Bloomberg. Morningstar in January named Ivascyn and the co-manager of the fund, Alfred T. Murata, fixed-income managers of the year for 2013.

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Pacific Investment Management Co., seeking to calm investors after the surprise departure of co-founder and former chief investment officer Bill Gross, said there will no major changes in investment strategy at the manager of the world's biggest bond fund.
Pimco, Chief, Investors, Gross
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2014-01-28
Sunday, 28 September 2014 12:01 PM
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