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William H. Gross
PIMCO has recently expanded and enhanced its investment leadership team. PIMCO founder and CIO Bill Gross discusses the new leadership structure and why he believes the naming of six Deputy CIOs will strengthen the firm’s ability to serve clients’ complex needs in an evolving, global marketplace.
Q: Please elaborate on PIMCO’s new Deputy CIO structure, and their roles and responsibilities. Bill Gross: Our new structure is going to be a significant improvement. It now includes six Deputy CIOs, each of whom will be leading an individual “channel” of assets, with oversight of trading desks or specialist areas or both. Their primary responsibilities are investment performance, overseeing day-to-day strategy formulation, implementation and risk management for their areas. They report to me.
As senior leaders in portfolio management, they have authority in both managing their teams and as primary managers on many client portfolios. Our tagline is “Your Global Investment Authority,” and this team has a depth of expertise across a broad array of assets and global regions. Our Deputy CIOs are recognized across our industry, including Dan Ivascyn, as Morningstar’s Fixed Income Fund Manager of the Year for 2013, and Mark Kiesel in 2012.
This team – and they are indeed a team – will have more operational flexibility and discretion, and will still be guided by PIMCO’s secular and cyclical guardrails.
Q: How will PIMCO’s investment process work going forward? Will the Investment Committee change? Gross: The basic idea is that the Deputy CIOs will apply the views of the Investment Committee (IC) and tailor them to their respective areas.
On the IC itself, the Deputy CIOs enhance the scope of inputs and perspectives, which brings more strategic focus to asset classes that previously have been less emphasized, while complementing our macroeconomic analysis.
Andrew Balls and Scott Mather have long been on the Committee, and have a European and global focus, respectively. New members to IC include Dan Ivascyn, who leads income and alternative strategies and is head of the mortgage credit portfolio management team; Mark Kiesel, global head of the corporate bond portfolio management group; and Mihir Worah, head of the real return and global multi-asset portfolio management teams. Virginie Maisonneuve will provide frequent input to IC, contributing to our debates and views of equity markets, but her primary focus is on leading our equity platform and chairing the Equity Portfolio Committee.
Aside from myself and the Deputy CIOs, other members of IC include Tony Crescenzi, who has unique insights into monetary policy, and Saumil Parikh, who leads our Cyclical Forum discussions on the near- to medium-term outlook on global markets and economies. Christian Stracke also serves on the Committee and heads our global credit research group. In all, an excellent mix of top-down and bottom-up perspectives.
We will take turns chairing our daily meetings, which will allow for greater focus on certain sectors and regions. I also find that I often prefer to sit at the side of the table rather than at the head of it. I can contribute more effectively that way, learn more by listening, and it gives others the opportunity to lead.
We believe this new format, and the idea sharing it will facilitate, will be more responsive to market developments. It will be great!
Q: In what way do you think this structure benefits clients? Gross: PIMCO’s focus has always been on managing risk and delivering returns for clients, and I firmly believe that our new investment structure will allow us to do that even more. We have substantial resources on each team to address the daily functions of the desks, so this structure will not materially change the amount of time the Deputy CIOs spend generating investment ideas for our client portfolios. In fact, each of our Deputy CIOs is empowered to scale the resources in his or her asset channel, which will help each team respond more efficiently and decisively to the markets.
To be sure, they will continue to manage strategies for which they are responsible, and will attend IC meetings as appropriate for their time management. Still, their participation will make our idea sharing more robust, as I mentioned. These are experienced investors on the front lines of strategy and the pursuit of alpha, and their contributions can only deepen our understanding of the economy and markets and improve portfolio construction across PIMCO. Ultimately, their increased nimbleness within their channels and the added layers of intelligence they bring to the firm overall should translate into long-term value for our clients.
Q: Where do you see opportunities for investors in the coming months? Gross: With a pickup in economic growth in the U.S., the Federal Reserve has begun to reduce its massive bond purchasing program, with a possible exit by the end of this year. Nonetheless, the markets are still financially repressed and likely to remain so for a good deal longer, pushing investors to take excessive risk in pursuit of higher returns. The high degree of leverage in the financial system, coupled with slowing credit growth, mean that volatility will also continue; we’re seeing that now in the equity and emerging markets.
Still, the outlook for the bond market is much better than in 2013. Interest rates have adjusted upward and now reflect better value. We think 10-year Treasuries at 2.6% are attractive. We continue to favor roll-down opportunities at the front end of the yield curve – four- and five-year Treasuries – which will be anchored by the Fed’s zero-bound policy rate for the next few years. On the equity side, we prefer stocks that return cash to shareholders in the form of dividends or buybacks.
Importantly, we’re being highly selective across all of our asset channels, looking from the bottom up for individual securities and balance sheets that are both healthy and well-priced. This call for caution, tempered expectations and selectivity is all part and parcel of a global economy attempting to transition from central-bank-induced growth to fundamental growth. Fortunately, PIMCO has a structure and process firmly in place to help clients navigate and hopefully prosper from it.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks, including market, interest rate, issuer, credit and inflation risk. Certain U.S. government securities are backed by the full faith of the government. Obligations of U.S. government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Equities may decline in value due to both real and perceived general market, economic and industry conditions.
There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.
The Morningstar Fixed-Income Fund Manager of the Year Award (2012, 2013) is based on the strength of the manager, performance, strategy, and firm’s stewardship. Morningstar Awards 2013©. Morningstar, Inc. All Rights Reserved. Awarded to Mark Kiesel for U.S. Fixed Income Fund Manager of the Year (2012) and Dan Ivascyn and Alfred Murata for U.S. Fixed-Income Fund Manager of the Year (2013).
This material contains the opinions of the speaker but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world. ©2014, PIMCO.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2014, PIMCO.
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