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Sancho Panza

Heir Apparent At Pimco-Mohammed El Arian- To Step Down

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New York Times 22/1/14

'The giant asset manager Pimco lost its heir apparent and most prominent spokesman on Tuesday when Mohamed A. El-Erian unexpectedly announced that he was stepping down from the company. His departure is likely to reverberate throughout the global bond market, where Pimco, with nearly $2 trillion in assets, is one of the biggest participants. As co-chief investment officer and chief executive, Mr. El-Erian played a major role in the company’s investment strategy, which influences the returns earned by the retirement accounts of millions of Americans.

Over the last year, however, Pimco has hit rough waters as its bond funds have struggled, reflecting rising interest rates and falling bond prices. Last year, investors in the firm’s signature Total Return Fund, which was the largest mutual fund in the world, pulled more than $40 billion out of the fund.

Pimco announced on Tuesday that it had “reorganized its leadership structure,” leading to Mr. El-Erian’s departure.

The move was surprising because Mr. El-Erian, 55, has been the public face of Pimco since he rejoined the company in 2007, taking some of the spotlight from the company’s famous founder and co-chief investment officer, William H. Gross.

In 2012, Mr. Gross said, “Mohamed is my heir apparent.” On Tuesday, by contrast, Mr. Gross took to Twitter to announce: “I’m ready to go for another 40 years.” That would take Mr. Gross to his 109th birthday.

A statement from the company said that Mr. El-Erian would leave Pimco in March but keep some leadership roles with Pimco’s parent company, the German insurer Allianz.

Pimco said on Tuesday that it was elevating two portfolio managers to become deputy chief investment officers under Mr. Gross. Douglas M. Hodge, the chief operating officer, has been named chief executive. A Pimco spokesman declined to comment beyond the statement.

Mr. El-Erian’s resignation underscores the upheaval in the investment world as rising interest rates put an end to a bond bull market that lasted for decades and helped build industry giants like Pimco and BlackRock.

Todd Rosenbluth, a senior director of research and analytics with S&P Capital IQ, noted that “2013 was a very tough year for Pimco” and said that it could be difficult for co-chief investment officers to continue to work together after such a year.

“It is a lot easier to share success than struggles,” he said.

In a letter sent to Pimco employees on Tuesday, Mr. El-Erian wrote that “the decision to step down from Pimco has not been an easy one.”

“What happens longer term is an open question,” he added. “I have no plans as of now. What I do know is that I am looking forward to doing something different.”

Mr. El-Erian, the son of an Egyptian diplomat who served at the United Nations and as Egypt’s ambassador to France, has also maintained an active public life beyond Pimco. In late 2012, President Obama named Mr. El-Erian the chairman of the President’s Global Development Council, which advises on issues like sustainable economic growth and opportunities for partnership between the public and private sectors.

Born in New York and trained at Oxford and Cambridge, Mr. El-Erian spent his early career at the International Monetary Fund, where he rose to become deputy director.

Before he returned to Pimco in 2007, he ran Harvard’s endowment fund for two years. His departure from Harvard was also abrupt. At the time, Mr. El-Erian said he was returning to Pimco to be closer to his family. He also received a significant raise, reportedly earning $100 million in one year at the fund behemoth.

Mr. El-Erian is better known as a public commentator about economics and finance than as an investment manager. In recent years, he is famous for popularizing the phrase the “New Normal” to refer to a period of slower economic growth, which Pimco expected would follow the financial crisis in 2008.

As an investor, Mr. El-Erian’s record is somewhat checkered. He was a portfolio manager on only three of Pimco’s smaller funds. All of them lost money last year. The largest of them, the Pimco Global Advantage Strategy, fell 2.6 percent over the last year, putting it below 50 percent of comparable mutual funds, according to Morningstar.

But it was the underperformance of the much larger Total Return Fund, managed by Mr. Gross, that really hurt Pimco. Over the last year, the fund has lost 1.2 percent, underperforming 72 percent of comparable funds, Morningstar figures show. Late last year, the fund lost its status as the world’s largest mutual fund, being surpassed by the Vanguard Total Stock Market Index Fund.

Over all, investors pulled $47 billion from Pimco funds last year. It was the first year on record that Pimco had net annual outflows.

The company has recently been pushing to move beyond its traditional focus on bond funds, but it has struggled to develop a significant stock investing arm.'

I always find surprise departures intriguing.

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I wonder...

As co CIO was it he who decided rates were rising and they should short bonds in 2011? What about late last year? What did they decide? Given rates are falling and bonds are rising...

Maybe he just messed up.

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