In the coming days, PIMCO will publish its annual Secular Outlook. A cornerstone of our investment process, it sets the direction for how we
will invest our clients’ assets over the coming three to five years. Of course, we revisit our outlook and investment conclusions each year to ensure
their continued resonance and efficacy. Similarly, we have a regular strategic business planning process and conduct intermittent reviews. And, like
our secular process, we often invite an outside expert or two to spark our thinking and challenge our priors.
Most importantly, whether investing client assets or the assets of PIMCO – our people, time and expense dollars – we know that responding and adapting
to changing external conditions is crucial. Indeed, it’s never been more important as the scale and pace of change in financial markets and the
marketplace for financial services has never been greater.
The global market for bonds and, perhaps more importantly, an investor’s ability to access the furthest reaches of the market, are vastly different today from when PIMCO was founded more than 40 years ago. First, we must acknowledge that following the financial crisis and a 30-year stretch of disinflation and secular interest rate declines, we have entered a period of sustained low interest rates and flat yield curves across the world’s developed bond markets. In the four years following the crisis, the “consumption” of bonds reached historically high levels. Though, more recently, individual investors’ appetite for bonds has diminished.
Recognizing these trends and the need to evolve with our clients’ objectives, over the last several years we have been diversifying our offerings
across a range of asset classes, geographies and strategies.
Changes on both sides of the equation
The size and complexity of the global fixed income markets has literally exploded in recent years. A decade ago, core bonds dominated both the
marketplace and PIMCO’s asset base. Today, the majority of our $1.9 trillion in assets addresses an opportunity set that has expanded to include
emerging markets, corporate and distressed credit, real estate, equities, commodities and an array of alternative strategies.
These changes reflect not only the complexity of today’s financial markets, but also a fundamental and profound shift in investors’ preferences
generally and those of our clients, specifically, both institutional and individual.
The dominant share of assets we manage is wealth being saved for old age, when individuals are no longer working. Indeed, the preponderant share of the
trillions of dollars, euros, pounds and yen our industry manages is wealth set aside for post-retirement. Over the past 30 years, the stewardship of
those assets has shifted from institutions to individuals. This has been brought about through regulatory change, corporate behavior and simple
demographics as an increasing number of individual investors have entered retirement.
At PIMCO, we have responded to the needs of both institutional and individual savers. Over its 27-year history, the PIMCO Total Return Strategy has
managed more investor fixed income assets than any mutual fund on earth. More broadly, we recognize that individual investors, now about half of our
client base, are driven by different motivations, different objectives and different responses to profit and loss. To this end, we have introduced a
myriad of new and diverse investment strategies and products over the last four years.
Whether institutional or individual, investors are confronting the current configuration of low interest rates and flat yield curves, which have in
turn compressed other risk premiums across the full spectrum of financial assets.
In bond space, individual investors have sought to mitigate interest rate volatility and focus on income generation. Meanwhile, institutions, often
beholden to prescribed return targets, have been migrating to higher-risk strategies to achieve their aggressive return objectives. Again, PIMCO has
responded with an array of strategies designed to unlock value through our time-tested investment process and our ability to use our size and
accumulated acumen to access value across the full spectrum of investment opportunities.
PIMCO’s Deputy CIOs
We have become truly a global enterprise, with 13 offices on five continents. Every day, more than 375 PIMCO portfolio managers and analysts scour the
markets to identify the single-best geographic, sector and security-specific opportunities. We routinely access parts of the capital structure that
were once the preserve of bank balance sheets, including securitized and senior debt, unsecuritized debt, commercial real estate and whole loans.
Earlier this year, in the latest expression of our evolution, we named six senior portfolio managers as Deputy Chief Investment Officers (DCIOs) to
work alongside our Founder and CIO Bill Gross. The DCIOs ensure that these broader opportunities and client needs are well represented in our
DCIOs Andrew Balls and Scott Mather, for instance, have long been on the Investment Committee, and have a European and global focus, respectively. Dan
Ivascyn leads our income and alternative strategies and heads the mortgage credit portfolio management team; Mark Kiesel leads our corporate bond
portfolio management group; Mihir Worah heads the real return and global multi-asset portfolio management teams; and Virginie Maisonneuve leads our
The DCIOs are proven investors with deep expertise across a broad array of assets and global regions. Collectively, they bring an enhanced set of
insights to our Investment Committee, whose membership is now better aligned with our assets, opportunities and client needs. They are cut from the
same cloth as Bill Gross; they’re investors first!
Today, the attraction of core bonds has waned – temporarily, we believe. Core bond strategies have certain positive attributes, which, regardless of
where we are in the cycle, are attractive in a diversified portfolio: Compared to most other asset classes, they are generally higher quality, less
volatile and a steady source of income. These attributes remain constants.
Markets and client needs will continue to change, and we will continue to invest in talent and technology to fulfill our mission to deliver superior
performance and client service. Yet, although PIMCO has diversified and expanded, the total return approach, pioneered at PIMCO, remains at the heart
of the solutions we offer.