(Pictured: Doug Hodge)
One of Bill Gross’s legacies at PIMCO, the firm he co-founded 43 years ago, is a refurbished room for yoga, pilates and other exercises at Newport Beach head office. Gross was a bit like that and PIMCO, for years, indulged him.
While the room’s future is unclear, the occasional US$200 million annual remuneration for an individual portfolio manager, as Gross was reportedly paid last year, is probably a thing of the past. The good things about PIMCO remain unchanged.
Doug Hodge, the chief executive, who has been fielding questions on the ramifications of Gross’s departure since the shock announcement on September 26, produced a client note last week which spells out the position.
“With Bill’s recent decision to resign, the perception has been that there has been a dramatic shift at PIMCO. However, the reality is that while PIMCO has evolved into a globally diversified investment company, our DNA is fundamentally unchanged,” he said.
“Our investment process, which lies at the heart of the value we offer clients, is ingrained – it is stamped into our DNA. Our culture of rigorous and open debate will continue to animate quarterly forums of our global investment and executive leadership, as well as the daily meetings of the investment committee. We remain a team-oriented organization.
“Indeed, it could hardly be otherwise in a firm which over many years has grown to nearly 2,500 investment professionals and staff stationed in 13 global offices, with nearly US$2 trillion in assets and a full suite of strategies, including core fixed income, income, real return, enhanced equities, active equities, commodities, active ETFs and alternatives…”
Gross’s main claim to fame from his clients’ perspective was the way he “redefined active fixed income investing” through his total return bond fund and leadership of the investment management team. As Hodge said, when he joined PIMCO in 1989, Gross was already two decades into his remarkable career.
But the fund which grew into the world’s largest mutual fund, at US$222 billion as of last June, suffered outflows of about $65 billion over the past two years and performance stuttered. Investor confidence was not helped by the resignation of former chief executive, Mohamed El-Erian in January but the main driver was undoubtedly nervousness of the future performance of fixed income strategies in a rising interest rate environment.
Hodge reiterated the credentials of his new investment team leadership last week, under group CIO Dan Ivascyn, pointing out: “These individuals are all highly successful and proven investors. Before becoming CIOs, they had already been overseeing about three quarters of the assets clients have entrusted with us. Some have been working together for more than 15 years.”
Moody’s predicted that PIMCO’s parent, Allianz, would lose “hundreds of millions of euros in revenue” because of a combination of Gross’s departure and the reduced investor appetite for bonds.