PIMCO CEO El-Erian Resigns

Bill Gross to remain CIO; Chief Operating Officer Douglas Hodge to be new chief

Mohamed El-Erian. (Photo: AP) Mohamed El-Erian. (Photo: AP)

PIMCO CEO Mohamed El-Erian has decided to resign effective mid-March, the bond giant announced Tuesday. Chief Operating Officer Douglas Hodge will take over as CEO of the investment firm. Bill Gross will remain chief investment officer.

“My first reaction is that he has been such a thought leader for PIMCO and a public face for them on CNBC, speaking about the direction of the markets, macroeconomic policy and more,” said Jeff Tjornehoj, head of Americas research for Denver-based Lipper, in an interview with ThinkAdvisor.

According to the PIMCO statement, El-Erian will remain a member of the International Executive Committee of Allianz (AZSEY), the international insurer that is PIMCO's parent company, and, as of mid-March, also advise Allianz's Board of Management of the multinational insurer on global economic and policy issues.

“Reading the PIMCO statement [about his news], I get the impression that he will not appear publicly so much anymore and will spend more time on internal operations at Alllianz,” Tjornehoj said.

Tjornehoj says he can’t comment on any Web-based speculation that El-Erian could be considering work for the Egyptian government.

“He had left PIMCO before [in 2005] to go to Harvard and came back a few years later,” the fixed-income specialist said. At Harvard, El-Erian led the Harvard Management Co., the university’s endowment unit. “So, we have seen this before — for different reasons, perhaps.”

About 15 minutes after the announcement was made, Gross said on Twitter, “PIMCO’s fully engaged. Batteries 110% charged. I’m ready to go for another 40 years!”

The partnership between Gross and El-Erian will be missed by those in the industry, Tjornehoj says. “They’ve had an excellent symbiotic relationship, with one generally looking out and one in,” he said. “But PIMCO’s appointed two people to fill El-Erian’s shoes, so it’s doing as much as it can to ensure a smooth transition for clients and employees.”

According to Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ, investors could use some soothing. Last year was “a tough” one for PIMCO, Rosenbluth says. (Investors pulled more than $41 billion of assets out of the PIMCO Total Return Fund, for instance.)

“As they are more exposed to fixed income assets than most large fund management firms, they were hurt by a shift in investor interest toward equities from fixed income,” the fund expert said in a statement.

The PIMCO Total Return Fund got hurt since it was “on the wrong side of the interest rate move and was weak on both an absolute and relative basis,” Rosenbluth adds. “Despite a stronger long-term record, when a high-profile fund struggles, leadership changes can accompany them.”

When he was named last year to Investment Advisor’s 13th annual list of the most influential people in and around the advisory industry, El-Erian spoke of how fortunate he considered himself to work at PIMCO. In an exclusive interview with Savita Iyer, he said the firm fosters a “culture of inquiry” that allows him to put into practice what he said he learned during his undergraduate studies at Cambridge University: “That how you think is as important as what you think.”

Speaking of advisors in that interview, he said they were “rightly focusing on understanding the dynamics of an individual and broadening their focus to learn about the needs of the entire household to build a customized plan to enable individuals to meet their financial objectives.” He also said that “the basic assumptions behind a “one size fits all” financial strategy that may have been effective in the past — and even that is debatable — need to evolve and dynamically adjust according to individual circumstances and objectives.”

In that interview, he also addressed the challenges faced by “policymakers and regulators” who he said have a “delicate balance to achieve between thoughtful policy and regulation and the potential unintended consequences that may inadvertently limit much-needed economic growth.” He also addressed America’s political dysfunction, which he warned was “encumbering the ability of the United States to focus on what’s important: long-term job creation and economic growth. This is the key to safely deleveraging over-indebted segments of society.”

The PIMCO statement on El-Erian's resignation also announced other leadership appointments at the investment firm:

  • Andrew Balls, Deputy Chief Investment Officer: Balls is a managing director in the London office, a member of the Investment Committee and Head of European Portfolio Management.
     
  • Daniel Ivascyn, Deputy Chief Investment Officer: Ivascyn is a managing director in the Newport Beach office, Head of Mortgage Credit Portfolio Management, and a lead portfolio manager for PIMCO’s alternatives investment strategies.
  • Jay Jacobs, President: Jacobs is a managing director in the Newport Beach office and is currently the head of talent management globally.
     
  • Craig Dawson, Head of Strategic Business Management: Mr. Dawson is a managing director and is currently head of PIMCO Germany, Austria, Switzerland and Italy, based in the Munich office. 

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Check out El-Erian: Be Picky on Emerging Market Investing in 2014 on ThinkAdvisor.

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