Reading the Road Ahead: Behind the Scenes at PIMCO’s Economic Forums
Images on screen: PIMCO’s cyclical forum and trade floor
Dan Ivascyn: We held the first economic forum back in the late 1970s. Today they still serve the same purpose, they are a way for us to step back and to think about the trends that could impact economies and markets for months and years to come. They ultimately help us read the road ahead.
Tiffany Wilding: We're always thinking about the next forum. What are the topics? What should we focus on? What are the market themes?
Dan Ivascyn: Goal of the forums is to gain a better understanding of key economic themes that are going to impact financial markets.
Tiffany Wilding: Take a step back from maybe day-to-day market moves, which can obviously can increase emotions, and to just think about where we are in the cycle.
Lupin Rahman: Means that we're able to take those conditions and apply them to the assumptions that we're making for each country's bottom up macro outlook. That very structured global view is incredibly important in determining how we position ourselves.
Steve Rodosky: And so we do three cyclical forums and one secular forum each year.
Tiffany Wilding: The cyclical outlook is something like 12 months to 18 months, whereas, a secular outlook is something like five years.
Steve Rodosky: The whole thing is a story with a beginning, a middle, and an end. And the ending is what that portfolio looks like.
Lupin Rahman: PIMCO's focus on listening to diverse opinions and really thinking outside the box is really, really unique.
Tiffany Wilding: About a month before we ask all of the regional committees and economist actually come up with their forecasts for GDP, for inflation, for the unemployment rate, for their particular regions, for monetary policy, for fiscal policy. Assign people to lead each session within the forum after kind of devising that agenda.
Stephen Chang: We have to really tune up on our intellectual fitness to be ready for the debate and the internal sparring of ideas.
Steve Rodosky: Second guess everything going into a debate and don't start off with a full set of assumptions.
Dan Ivascyn: It's an attempt to combat group think, elevating contrarian views, challenging our current thinking. And it allows us to solicit feedback from a wider range of individuals. People that are outside the day-to-day investment decision making process that could have a unique perspective.
Christian Stracke: Back in 2016, before the election, we were having a pretty intense debate with Ben Bernanke. It was an extraordinary debate, and it was a great example of how at PIMCO, there's nothing sacred. The level of debate, the level of discourse, the intensity of the debate.
Steve Rodosky: It's a very non-hierarchical process, so it's common to have a vice-president disagreeing with a managing director, and that keeps things exciting. One of the key characteristics of our forum process is inviting every year's MBA class. It's an opportunity for them to show the rigor and substance of what they've spent their time learning on over that first year.
Dan Ivascyn: It does force us to look at alternate scenarios in a thoughtful and structured manner.
Steve Rodosky: Try and point out something that was either looked over or not enough time was spent on it that it might come back to haunt us. Find the Lego in the carpet before you step on it.
Dan Ivascyn: There have been certainly instances where we've discussed key trends that have driven returns. Probably the best example, related to the housing market, in the years leading up to the global financial crisis, with a focus on aggressive underwriting and a lot of froth in the US, that’s an example where we began to uncover these key themes and trends back in 2004. Because we played great defense on behalf of clients, we are able to go offense on their behalf in the many years to come.
Tiffany Wilding: It allows us to think about where markets are going, where the economies are going, but it also allows us to think about risks. And in terms of portfolio management, it's all about managing the risks. Those are the kinds of things that help clients, active management instead of passive. And we think year after year, that's providing our clients value.
Christian Stracke: Frankly, I'm not really sure how you can operate without this kind of a common baseline. Some of our competitors, are not integrated the way that we are. And what you might end up with is kind of a hodgepodge of different economic views, maybe explicit, but often implicitly baked into a lot of positions.
Ivascyn: And then after the forums, the portfolio management group in particular gets together for several days.
Christian: The high level discussion of economics is critically important, but what's most important is then translating those views into, what are we going to do with our client's assets? How are we going to position our client's portfolios?
Steve Rodosky: The content that we deliver stretches far beyond just the fixed income corner.
Lupin Rahman: What has always struck me is that, regardless of which country I'm in, they will always ask me about PIMCO's views on the treasury market, our global macro views, how is PIMCO thinking about current market conditions and the state of the financial markets. Not only our clients, but essentially a large part of our counterparties really value what PIMCO thinks.
Christian: We have a bit of an edge in economic thinking.
Steve Rodosky: Customers should find confidence in the fact that we're constantly trying to make ourselves a better firm.
Ivascyn: It's, again, a key part of what we are as a firm. And for that reason, we're going to continue to not only conduct forums, but embrace that key element of our overall process in the firm culture.
Disclosure
All investments contain risk and may lose value. 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 low interest rate environments increase this risk. 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. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations.
This material contains the opinions of the manager 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.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. 2604517) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2022, PIMCO.
CMR2022-1202-2621186