Davos Not for Everyone—Just Ask PIMCO’s El-Erian

Issues affecting the financial markets and the global economy do not get the treatment they deserve at the World Economic Forum, says El-Erian

While executives and government officials attending the World Economic Forum in Davos, Switzerland, debate everything from the future of capitalism to pay at the major investment banks, at least one money manager says he’s happy to stay home.

“I’ve never been to Davos, despite attempts by many over the years to persuade me to go,” PIMCO CEO and co-CIO Mohamed El-Erian (left) wrote recently for Reuters. And, judging from the full text of his remarks, he most likely never will.

“The annual meeting of the World Economic Forum in that intimate setting remains one of the year’s hottest tickets, but its organizers want their event to be much more than what it currently is–a big, prestigious talk-shop. They want it to influence policy at the national, regional, and global levels,” explains the head of the Newport Beach, Calif-based bond shop.

“Yet, over the years, and in the context of an increasingly unsettled and uncertain world, Davos has not had much impact,” El-Erian concludes. The broad topics being discussed, he notes, mean that “breadth trumps depth.” And synthesizing these views in to a coherent plan of action is “virtually impossible one when it involves so much wealth and so many egos.”

The discussions are also backward focused rather than forward looking, points out El-Erian.

Furthermore, participants come with their own narrow agendas and put those ahead of the event’s wider goals. In other words, he explains, the key players “do not want to give up control of their narratives, and they certainly do not wish to delegate any meaningful part of their personal agenda to Davos.”

How to change this? First, El-Erian argues, WEF organizers must shift how the event’s agendas and discussions are structured.

“To be more productive, more useful, they need to be much less inclusive at some key moments. Very difficult (and highly delicate) decisions have to be made about who to involve in certain meetings and who to exclude,” he notes.

Second, the event must become genuinely collaborative. “This lack of collaboration has been

particularly costly at a time when the world teeters on the brink of an economic abyss,” El-Erian explains. “Shared interests must come with a greater sense of shared responsibilities”

While the chance of such reforms happening is small, the PIMCO chief admits, the world requires such shifts.

Perspectives on Pay

Similarly, Morgan Stanley (MS) CEO James Gorman is asking members of the industry to come to grips with a new reality—lower pay.

“The world has changed and the banking industry has gone through a fundamental change, and we have to readjust,” Gorman said in an interview with Bloomberg Television at Davos, referring to pay for investment bankers and traders.  “When we come out of this and we start re-performing, obviously compensation will reflect that. Until then, we have to respect the fact that shareholders have to get paid, too.”

According to Bloomberg, Morgan Stanley is lowering pay for senior investment bankers and traders by an average of 20% to 30%. In addition, their cash bonuses are being capped at $125,000.

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