Kashkari's Pimco exit may be more about performance than politics

Slow growth for equity unit may have hastened his exit, pundits say

Feb 19, 2013 @ 9:06 am

By Randy Diamond

Kashkari's PIMCO exit may be more about performance than politics
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Neel Kashkari said his desire to return to 'public service' was the only reason he left PIMCO.

Two months before his unexpected departure in January as head of global equities at Pacific Investment Management Co., Neel Kashkari told top California Republican Party officials he was giving up the asset management business because he wanted to run for governor.

But investment management consultants and executive recruiters speculate that Mr. Kashkari left in part because he had a tough time building an equities business at a huge player in the fixed-income world.

Despite a three-year effort that began in early 2010, shortly after Mr. Kashkari's hiring, equity assets under management totaled only $9.9 billion as of Feb. 15, not even 1% of the firm's $2 trillion in assets.

Of that amount, about 20% is in institutional strategies. The remainder is in six equity mutual funds, whose performance mostly has been less than spectacular.

Karin Anderson, analyst at Morningstar Inc., Chicago, said given the equity funds' “peripheral” role in PIMCO's overall assets, she could understand why Mr. Kashkari might have felt frustrated and decided to leave.

“Was there really much more for him to do?” she asked.

Commenting on PIMCO's attempt to build its equity business, Michael Castine, chairman of asset and wealth management, at Korn/Ferry International, said: “It's an experiment past the sell-by date, which is probably why Neel left.”

But Jim Brulte, expected to become chairman of the California Republican party next month, said Mr. Kashkari told him he would be leaving PIMCO to run for statewide elected office because his heart was in public service.

Mr. Kashkari wouldn't comment on whether job frustrations or the difficulty in building an equity business contributed to his departure.

In an e-mailed response to questions, he reiterated the statement he made when he quit PIMCO — that he wanted to return to “public service.” He said his tenure as former assistant Treasury secretary for financial stability in charge of the $700 billion Troubled Asset Relief Program, which bailed out banks and insurers during the financial crisis, was the most rewarding job he's had.

Missed government work

A person with knowledge of the situation said Mr. Kashkari took the PIMCO job expecting it would be a long-term career move. But he missed working in government and politics. He said his work situation at PIMCO had nothing to do with Mr. Kashkari's decision to quit.

(In an interview with Pensions & Investments in June 2012, Mr. Kashkari had said it would take seven to 10 years to develop PIMCO's equity business.)

But one former high-level PIMCO official, who spoke on the condition that his name not be used, said he never believed Mr. Kashkari planned to spend a long time at PIMCO because of his political background.

PIMCO spokesman Michael Reid said PIMCO officials would not be available to discuss Mr. Kashkari's departure.

Data from mutual fund tracker Morningstar shows PIMCO's largest equity mutual fund, the almost $2 billion Pathfinder EqS fund, ranked in the bottom decile of all global stock funds for 2012.

Separate and commingled accounts using the same strategy ranked in the bottom quartile, according to eVestment LLC, Marietta, Ga.

Geoffrey Bobroff, president and founder of Bobroff Consulting, East Greenwich, R.I., said the EqS fund is due to receive its star rating from Morningstar after it reaches its three-year mark in April. He thinks it likely will receive a one-star rating because of its subpar performance.

“If you are not a four- or five-star fund, you are most likely not going to get inflows,” Mr. Bobroff said.

Meanwhile, sources say PIMCO's lean-and-mean approach might have led to job frustration for Mr. Kashkari, who had gained rock-star status from overseeing TARP.

One former PIMCO employee said Mr. Kashkari's celebrity status helped him cut a deal to get managing director rank and partner status, allowing him to share in the firm's profits.

Mr. Kashkari was the first non-CEO at PIMCO to earn that status without coming up through the ranks, sources say.

Some PIMCO employees were surprised by the Kashkari hire because he had never picked stocks for a living. He wasn't a portfolio manager at PIMCO, but was a key person in charge of building overall equity strategies. Under PIMCO's approach of making decisions by consensus, Mr. Kashkari was one of 20 people who picked six portfolio managers and their key staff to run the equity strategies and funds.

Mr. Bobroff said PIMCO officials might have been wiser to pick an executive in charge of equities who had managed equity portfolios and had name recognition in the equities world.

What PIMCO needs to overcome, he said, is, “When people think of equities, they don't think of PIMCO.”

Randy Diamond is a reporter at sister publication Pensions & Investments.


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