(February 18, 2014) — PIMCO’s founder Bill Gross has aimed to reassure clients of the firm’s stability and new leadership structure after CEO and co-CIO Mohamed El-Erian announced his resignation last month..
In a letter to clients, Gross said he remained confident that the new governance organization—inclusive of six deputy CIOs—would be “a significant improvement.”
The senior leaders—Dan Ivascyn, Andrew Balls, Mark Kiesel, Virginie Maisonneuve, Scott Mather, and Mihir Worah—would each lead an “individual ‘channel’ of assets,” managing investment performance, strategies, and risk management in their areas of expertise. They were appointed to their roles after El-Erian’s resignation.
“The basic idea is that the deputy CIOs will apply the views of the investment committee and tailor them to their respective areas,” Gross wrote. “We will take turns chairing our daily meetings, which will allow for greater focus on certain sectors and regions.”
Gross said while the new structure was not fundamentally different from one that had been in place before, it would help increase “nimbleness within [the deputy CIOs’] channels” to bring better long-term returns to clients.
“These are experienced investors on the front lines of strategy and the pursuit of alpha, and their contributions can only deepen our understanding of the economy and markets and improve portfolio construction across PIMCO,” he added.
According to the firm’s reports, the Total Return Fund saw nine consecutive months of outflows—a total of $41.1 billion—and recorded a negative return for the first time in 14 years last year. 2014 was similarly unkind to the bond giant, with another $3.5 billion pulled out and a low gain of 1.35% in January.
Some investors are wary of the changes. The Orange County Employees Retirement System has put PIMCO’s Unconstrained Bond Fund on “watch list for changes in key personnel,” according to its investment committee’s meeting agenda, posted online this month.
However, Gross remained positive and optimistic for new opportunities in the coming months.
“The outlook for the bond market is much better than in 2013,” he wrote. “Interest rates have adjusted upward and now reflect better value. We think 10-year Treasuries at 2.6% are attractive.”
Volatility will still be a concern, he added, due to high leverage in the financial system and deceleration of credit growth. PIMCO would continue to be highly selective and cautious across all asset classes, he said.
“Fortunately, PIMCO has a structure and process firmly in place to help clients navigate and hopefully prosper from it,” he said. “We believe this new format, and the idea sharing it will facilitate, will be more responsive to market developments. It will be great!”
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