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Portfolio > Alternative Investments > Private Equity

Pimco Leaders Assess Markets, Government Policies

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Pimco’s CEO and Co-CIO Mohamed A. El-Erian says business at the bond shop is “booming,” which is not a good sign for the U.S. economy, he told Bloomberg in September during a radio interview.

El-Erian said that net inflows into bond funds reached $120 billion in the first eight months of 2010. The Pimco Total Return Fund, for instance, attracted $2 billion in June and the same amount in July, according to the Financial Research Corporation. It now has about $240 billion in assets, says FRC.

The bond shop, however, recently made its own push into equities, introducing the Pimco Equity Series Pathfinder Fund, its first active equities product, in April. In addition, it plans to offer four or five more new global equity strategies over the next few years, according to Neel Kashkari, head of Pimco’s investment initiatives, in a recent interview with Reuters.

El-Erian also has also been vocal in his views on U.S. economic policy. The Pimco CEO says he’d like to see: a set of self-reinforcing measures on both the demand and supply side that signal the Obama Administration’s recognition of the seriousness of the economic situation, as well as plans to address the increasingly visible structural headwinds that undermine high growth and meaningful job creation and that stand a good chance of implementation.

El-Erian also wants action that would change “the widespread perception that, to date, economic policy responses have been ad hoc, piecemeal, uncoordinated and reactive.”

“This is not an easy undertaking, especially given the currently polarized political environment and the anti-Washington mood in the country as a whole … With the November elections looming, the Administration must hit a home run,” El-Erian concluded.

In late August, Pimco Co-CIO, managing director and founder Bill Gross urged the Treasury Department to put in place a mass refinancing plan for all non-delinquent mortgages backed by the federal government.

“Taxpayers would be protected through tight regulation, adequate down payments, and an insurance fund bolstered by a 50-75 basis point fee attached to each and every mortgage. Seemed commonsensical to me,” he wrote in his September online commentary.

Also in August, Pimco managing director and portfolio manager Paul McCulley shared his views online about what U.S. monetary leadership should be doing to improve the country’s economic conditions.

“When the economy suffers from Post Bubble Disorder, characterized by private sector deleveraging and a fat-tail risk of deflation, conventional monetary policy is not enough,” McCulley wrote.

His overall conclusion is that now is not the time to exercise fiscal restraint: “To generate increased growth in aggregate demand, some sector of the economy must be willing to pro-actively lever its balance sheet. And that must be the fiscal authority, if the private sector is intent on de-levering.”


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