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Rating:Gross Hands Over the Reins in Pimco's Equity Push Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, June 24, 2010

Gross Hands Over the Reins in Pimco's Equity Push

Reported by Sean Hanna, Editor in Chief

Pimco has already failed once when trying to break into the equity side of the asset management business, so what makes Bill Gross think that this time will be different? Bloomberg interviews the famed bond manager, and he admits that he may have been the problem causing the effort in the eighties to fail. A second effort built around Pacific Mutual's acquisition of Columbus Circle Funds failed when the rebranded funds ran afoul of regulators for allowing a hedge fund to make market-timing trades in the funds.

Speaking of meetings where bond managers "overwhelmed" equity managers, Gross tells the news service that:

"Those sessions basically said, 'Hey, we're a bond shop. This is what we're going to do. Its the party line.' If I've been a problem, then I can be the solution in terms of allowing equity investments to grow and prosper."

Now, Gross says he has changed. It simply means perhaps weve grown up, and I have. Im 66 now and recognize there are lots of different pieces to a puzzle and they each have a right to a place in the capital markets."

While Pimco is launching equity funds, Gross and his CEO, Mohamed El-Erian, have a pessimistic view on U.S. stocks that is shaping their product decisions. "Were not going to launch a large-cap U.S. fund," Neel Kashkari, who joined Pimco from the Treasury, admits in the article.

Gross also admits that the bias against equities has been ingrained at Pimco since it opened its doors in 1971 and he decided against taking an equity analyst from Pacific Mutual Life.

"It would have been better to bring the equity person. We would have been balanced from the beginning," Gross admits. For the new effort, Pimco has hired 12 executives, managers and analysts to cover equities and may hire several more.

Gross is also vowing to stay out of the loop, instead letting El-Erian drive the push. That effort includes Pimco's new flasgship equity fund Eqs Pathfinder, which the Newport Beach, California firm launched in April. The fund invests in global equities and reflects El-Erian's investment outlook.

"We are living through a remarkable time of change," El-Erian tells Bloomberg. "We want to make sure we navigate the changes for our clients."

So far, the fund has gathered more than $500 million in AUM despite just being on the market less than three months.

The article also delves into the personalities of Gross and El-Erian. Gross prefers what he admits is "isolation" while he works (and he gets to the office at 5 a.m. each morning). El-Erian is more outgoing.

Once, when Morningstar named Gross the manager of the decade, El-Erian interrupted Gross' solitude with a cake special delivered at 4:45 a.m. -- when it arrived traders erupted in a standing ovation.

That was "the last thing he wanted, because then he had to say something." El-Erian tells Bloomberg.

For his part, Gross calls El-Erian "unrelenting and indefatigable."

El-Erian may also be more disciplined than the typical mutual fund firm executive. To help with product development, he built a spreadsheet for top executives and had them mark it with different colors for areas the firm should enter ("green"), learn more about ("yellow") or avoid ("red").

Portfolio managers have their own version of the spreadsheet, as do Pimco's sales professionals. The sales team uses its spreadsheet to communicate their clients' preferences.

We got all these matrices back, we put them on top of each other and we had this overlapping matrix approach that resulted in a road map for Pimco, El-Erian says.

Currently, the spreadsheets are giving a greenlight to asset allocation funds,a yellow light to equity products and show a stoplight red for private equity funds. 

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