Strategy Spotlight

PIMCO Introduces the PIMCO Multi‑Strategy Alternative Strategy

​Through a single investment, the strategy allows investors to access the complete suite of PIMCO’s liquid alternative strategies.

​PIMCO recently introduced the PIMCO Multi-Strategy Alternative Strategy, a comprehensive liquid alternatives approach that seeks attractive risk-adjusted returns and diversification relative to traditional stock and bond allocations. The approach accesses the full suite of PIMCO’s absolute-return-oriented liquid alternative strategies, including offerings across absolute return fixed income, equity long/short, equity market neutral and managed futures categories. In the following interview, portfolio managers Josh Davis, Mihir Worah and Mohsen Fahmi discuss the strategy’s objectives, investment process and role in an investor’s portfolio.

Q: What is the PIMCO Multi-Strategy Alternative Strategy?
Worah: The strategy is an “all in one” liquid alternatives approach that seeks to generate attractive risk-adjusted returns across market environments, with a focus on limiting portfolio downside during large corrections in equity or bond markets. The majority of the portfolio is dynamically allocated across the full suite of PIMCO’s liquid alternative offerings. It also has the ability to invest directly in individual securities, which helps facilitate better risk management and allows us to access additional complementary alternative strategies.

Q: What are the potential benefits to investors?
Davis: Return potential, diversification and convenience are the big ones. Through a single investment, our strategy allows investors to access the complete suite of PIMCO’s liquid alternative strategies. 

In a New Neutral environment that anticipates muted returns and heightened volatility, many investors have looked to liquid alternatives in an effort to boost returns and lower overall portfolio risks. Yet the risks and returns of liquid alternative strategies tend to vary markedly between strategies, even within the same category. This creates a challenge for investors seeking to assemble and manage a diversified portfolio of liquid alternative strategies.

Our approach seeks to efficiently combine a range of complementary liquid alternative strategies, offering the potential for diversification and higher return per unit of risk than a single strategy could achieve on its own. In so doing, we address the three key challenges that investors face when allocating to liquid alternatives: strategy selection, asset allocation and risk management.

Q: What is unique about this strategy?
Fahmi: PIMCO is one of the few managers with such a broad suite of independent liquid alternative strategies, and we are the largest provider of alternative mutual fund strategies in the U.S. as of December 2014, as defined by Morningstar. Portfolio managers of the underlying liquid alternative strategies include two Morningstar U.S. Fixed-Income Fund Managers of the Year award recipients, Mark Kiesel in 2012 and Alfred Murata in 2013, as well as Rob Arnott, co-Founder of Research Affiliates and a pioneer in fundamental indexing.

A key differentiating feature of this strategy is its ability to tactically allocate and manage risk. We have full look-through into the investment positions of strategies that we manage in-house, which allows us to monitor changes in risk exposures and liquidity in real time. It also allows us to make prudent allocation shifts if we find there are meaningful changes in risk exposures of underlying strategies.

Furthermore, we primarily allocate to mutual fund strategies that provide daily liquidity in contrast to approaches that offer daily liquidity but allocate to third-party managers who may offer liquidity only on a monthly, or even less frequent, basis.

Finally, our approach has the flexibility to invest in individual securities to gain exposure to additional liquid alternative strategies and to manage overall portfolio risks. This allows us to efficiently manage overall exposures – both in the component strategies and at an aggregate level – and hedge undesired ones.

Q: Could you describe the investment process?
Davis: The investment process is designed to construct a portfolio that is balanced across a diversified set of strategies, optimized to achieve our investment objectives. It begins with our proprietary risk systems that look through the underlying strategies in real time to estimate key inputs in the portfolio construction process – in particular, correlations and volatilities of the underlying strategies. We then construct a target risk allocation that seeks to diversify risk across our investment opportunity set, while accounting for potential overlap in positions across some strategies. Finally, the portfolio is monitored daily to ensure allocations remain within target. Even though we already have a very broad investment opportunity set, we have the flexibility to include new strategies over time.

Mihir, Mohsen and I work closely as a team to evaluate new strategies for inclusion in the opportunity set. 

Q: Could you elaborate on how investors should think about incorporating this strategy into their existing asset allocation?
A: The size and placement of an allocation in a portfolio can vary based on investor objectives and constraints. For investors who have carved out an allocation to liquid alternatives, this strategy can play a central role as it provides broad exposure to multiple liquid alternative strategies and seeks attractive risk-adjusted return potential and diversification to traditional stocks and bonds. Alternatively, because many of the strategy’s underlying investments seek to deliver returns from stock and bond markets but in a less constrained manner than traditional approaches, it can also be used as a stand-alone complement to traditional stock and bond allocations. 

The Author

Josh Davis

Portfolio Manager, Quantitative Strategy

Mihir P. Worah

CIO Asset Allocation and Real Return

Mohsen Fahmi


Past performance is not a guarantee or a reliable indicator of future results. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.  Swaps are a type of derivative; swaps are increasingly subject to central clearing and exchange-trading. Swaps that are not centrally cleared and exchange-traded may be less liquid than exchange-traded instruments.

PIMCO’s liquid alternative strategies are without the principal lock-ups of traditional private equity funds and hedge funds and include separate accounts whose holdings can be liquidated at a client’s request subject to current market conditions, mutual funds that can be liquidated at NAV on a daily basis and ETFs that can be liquidated on the secondary market under normal market conditions. There is no guarantee that a security will be able to be liquidated in a timely fashion or when it would be most advantageous to do so.

Diversification does not ensure against loss. 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 is based on the strength of the manager, performance, strategy, and firm’s stewardship (2012/2013). Morningstar named Dan Ivascyn and Alfred Murata the 2013 Fixed Income Manager of the Year (US).

This material contains the opinions of the managers and such opinions are subject to change without notice. This material has been distributed for informational purposes only 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 is a trademark or registered trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. THE NEW NEUTRAL and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Pacific Investment Management Company LLC in the United States and throughout the world. ©2015, PIMCO.