Strategy Overview
PIMCO’s Prime Money Market strategy is designed to maximize current income while preserving capital and providing daily liquidity. To meet these goals, money market strategies traditionally invest in short-term, high-quality, fixed-income securities with minimal volatility and credit risk. These include, but are not limited to, U.S. Treasury securities, federal agency securities, commercial paper, banker’s acceptances, certificates of deposit, short-term corporate debt, and variable and floating rate debt securities.
The objective is to consistently outperform both a passive and active benchmark without taking on excess risk. The passive benchmark is represented by the Citigroup 3 Month Treasury Bill Index and the active benchmark is represented by the Lipper Money Market Index of the 30 largest money market mutual funds.
| Applications for the Prime Money Market Strategy |
PIMCO’s Prime Money Market strategy has a wide variety of practical applications in a client’s portfolio. It seeks competitive short-term rates while focusing on principal stability and liquidity. Practical applications include:
- Matching instrument for short-term liabilities
- Temporary holding investment before permanent allocation
- Strategic alternative to “cash” investments with minimal price variation
- Investment for those with short-term investment horizons and a need for principal stability and high liquidity
- Investment for those who perceive unfavorable longer-term asset class risk-return trade-offs
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| Investment Philosophy and Sources of Added Value |
Our prime money market investment strategy combines a simple core investment philosophy, extensive research analytics, and a highly effective decision-making process. We have traditionally used internal modeling and our knowledge of broad market sectors, both domestic and non-U.S., to construct portfolios consistent with client return and volatility objectives. To contain relative performance volatility, we have attempted to manage portfolio return volatility to approximate that of an associated benchmark.
Our investment process utilizes both “top-down” and “bottom-up” strategies. Top down strategies are driven by our secular outlook of the forces likely to influence the economy and financial markets over the next three to five years and our cyclical views of two- to four-quarter trends. Implementation in portfolios is effected by selecting securities that achieve these designated objectives. Bottom up strategies drive our security selection process and facilitate the identification and analysis of undervalued securities. By combining perspectives from both the portfolio and security levels, we strive to add value over time within acceptable levels of portfolio risk. |
| Risk Management/Controls |
Risk management has been a major concern at PIMCO since our inception in 1971. As new technologies and financial instruments develop, we strive to ensure that our risk management procedures remain effective and that we stay ahead of our competition. We dedicate significant financial and intellectual resources to address risk management.
We feel risk manifests itself in two main forms – investment and operational. Effective investment risk management begins with the identification of client objectives and their level of risk aversion. From there, a set of appropriate investment guidelines and effective risk measures are developed. Advanced proprietary analytics allow us to model securities under a multitude of scenarios including best and worst cases. We believe the decision to hold a security is just as important as the decision to buy. As a result, portfolio holdings are priced and re-evaluated on a regular basis.
Operational risk is equally as important as investment risk. Operational risk deals with problems or errors that may arise during day-to-day operations of the firm. Our organizational structure is designed to cope with this organizational risk. This is accomplished by segregating responsibilities for portfolio management, account management, and investment support monitored by an independent compliance group. At PIMCO, we have embraced this methodology from our inception and it has benefited both our clients and the organization as a whole. Our system has clearly defined checks and balances to provide reasonable assurance that all risk exposures are handled in an appropriate manner. |