|
 With Mohamed El-Erian, 55, resigning his position as chief executive
and co-chief investment officer at the $2 trillion asset manager,
all power now appears to be flowing back to Gross, who co-founded
Pimco in 1971 and runs the $237 billion Total Return Fund, a
mainstay in many retirement portfolios.
Gross, a yoga enthusiast who shaved his mustache a few years ago to
look younger, greeted the departure by dividing up El-Erian's roles
among a few more men, and by saying he is not yet planning for life
after investing in bonds.
"Pimco's fully engaged. Batteries 110 percent charged," Gross said
in a Twitter post from the firm's official "@PIMCO" account that
still features a photo of Gross and El-Erian side by side.
"I'm ready to go for another 40 years!" his tweet continued, a nod
to the rigorous work ethic demanded by Gross, known among rivals and
investors as the "Bond King." Portfolio managers at Pimco start
their days at 4 a.m. and rarely speak on the firm's Newport Beach,
California, trading floor, communicating instead by email to keep
the noise down.
El-Erian, a trained economist and one-time senior International
Monetary Fund official known for his near daily appearances on cable
television and wide-ranging market calls, landed back at Pimco seven
years ago after leaving the bond house for a two-year stint as head
of Harvard University's endowment. He first joined Pimco in 1999.
Pimco parent Allianz <ALVG.DE> brought him back in part to "reduce
the Bill Gross risk," said one investor who asked not to be named
for fear of angering Gross.
Even though Allianz quickly appointed Douglas Hodge as chief
executive officer plus Andrew Balls and Daniel Ivascyn as deputy
co-chief investment officers to replace El-Erian, analysts and
investors agree that none are real contenders for Gross' job right
now.
"The problem is it takes a number of years to groom somebody like
Mohamed," said Sean Egan, president of Egan-Jones Ratings Co. "It's
difficult and Bill Gross is not getting any younger. From a public
perception standpoint, the next couple years are going to be
difficult."
Pimco declined repeated requests to interview Gross, El-Erian or his
newest lieutenants.
The two deputy co-chief investment officers have managed billions of
dollars, but nothing that compares to the Total Return fund.
Ivascyn's $30 billion fund at Pimco, for example, amounts to less
than 13 percent of Gross' main portfolio.
"Heir apparent is not their label now," said Morningstar senior
research analyst Eric Jacobson.
Indeed Gross has said in media interviews following El-Erian's
resignation that more deputies would be named in coming weeks, a
sign his pool of potential successors is growing, not narrowing.
Morningstar analysts said the list of new appointees could include
portfolio managers and directors such as Curtis Mewbourne, Christian
Stracke, Scott Mather and Tony Crescenzi, each a long-time bond
market hand of one stripe or another.
The group, Jacobson said, tends to skew relatively young and is
somewhat split among those with strong backgrounds in economics, and
those with more hands-on experience running portfolios. There appear
to be few generalists who have the mix of skills one would expect to
find in an heir to Gross, he said. "I can't think of any single
person who would seem to be an obvious and ready candidate."
For investors — especially the big name institutions — a clear
succession plan has always been important, prompting even other
iconic investors such as Warren Buffett, 83, to groom Todd Combs and
Ted Weschler as potential successors.
[to top of second column] |
But at Pimco there is now no clear plan B.
"Pimco investors should be worried," said Erik Gordon, professor of
business and law at the University of Michigan. "There should be a
succession plan that doesn't require Gross to be CEO at age 109," he
said.
TURNING THE TIDE
For Pimco, the abrupt shift in management comes at a critical time
just as the decades-long bull run in bonds appears to be ending, and
the bond market's biggest influence, the Federal Reserve, is
maneuvering to dial back its extraordinary policies that pushed bond
yields to historic lows.
Gross' Total Return fund had outflows of $42 billion, according to
Lipper, and lost 1.92 percent last year. The fund underperformed 72
percent of comparable funds in 2013, data from Morningstar shows.
Burton Greenwald, an industry consultant who runs Greenwald
Associates, said: "Bill Gross is well along in age and at some point
he is going to want to hang up his hat. After all he wasn't fixed
income manager of the year last year, Dan Ivascyn was. This is a
critical transition period for the firm as stocks are more on most
investors' minds."
Because El-Erian managed only a fraction of the assets Gross
oversees, his departure is unlikely to trigger the kind of
redemptions asset manager TCW faced when star manager Jeffrey
Gundlach left.
But it will raise questions, analysts said. Gross's calendar will
likely be jam-packed with meetings for weeks as pension funds,
endowments and others stream to Pimco's Newport Beach offices for an
explanation of what is next.
In the meantime, deputy co-chief investment officers, Ivascyn and
Balls, are considered rising stars, and highly capable. Ivascyn, 44,
a mortgage credit expert, has just been named Morningstar's fixed
income manager of 2013 along with colleague Alfred Murata. Their
Pimco Income fund gained 4.8 percent with the help of bets on
nonagency mortgage-backed securities.
Andrew Balls, a former journalist turned portfolio manager, has been
Pimco's spokesman for the European debt crisis and has close ties in
London where his brother, Edward Balls, is the Labour Party's shadow
chancellor.
It will fall to them, in part, to help Pimco bring in fresh money
and turn the tide after last year's outflows.
"Ivascyn has certainly demonstrated great skill as a portfolio
manager," Michael Rosen, chief investment officer at Angeles
Investment Advisors said, adding "but whether he can continue to do
that while he's taking on increased responsibilities of being a
deputy chief investment officer remains to be seen."
(Additional reporting by Jennifer Ablan in Davos, Switzerland, and
Luciana Lopez and Sam Forgione in New York; editing by Richard Valdmanis, Dan Burns and Lisa Shumaker)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
