Could Ivascyn be Gross' heir apparent at Pimco?

Jan 27, 2014 @ 9:00 am

Daniel Ivascyn is a beast.

That's a compliment coming from Scott Simon, who worked with Mr. Ivascyn for 13 years at Pacific Investment Management Co. Rather than relaxing on weekends, Mr. Ivascyn likes to spend his days buried in prospectuses.

“He would come in on a Monday and say, 'Oh my God, this deal's unbelievable,'” said Mr. Simon, who headed mortgage investing at Pimco before retiring last year. “He's awesome. He has a great sense of risk-reward. A great sense of value.”

Mr. Ivascyn's long hours — even by Pimco standards — paid off with a promotion to the executive suite. His stellar returns as co-manager of the $29.9 billion Pimco Income Fund propelled him to the post of deputy chief investment officer at the world's largest bond manager. The title, which makes Ivascyn a possible heir apparent to Pimco co-founder Bill Gross, 69, was part of the shakeup last week set in motion by chief executive Mohamed El-Erian's surprise resignation.

In the wake of Mr. El-Erian's departure from Pimco, InvestmentNews editor Fred Gabriel sat down with senior columnist Jeff Benjamin to discuss what this shift of power may mean.

Mr. Ivascyn's performance was a rare bright spot in 2013 for the company. The Pimco Income Fund's 4.8% return beat 97% of peers in a year when the asset manager's biggest funds on average trailed two-thirds of comparable funds, according to data compiled by Bloomberg. Over the past three- and five-year periods, Mr. Ivascyn's fund topped 99% of peers, according to Bloomberg data.


“It has been pretty clear for a while that Dan is part of the next generation of leadership at Pimco,” said Michael Rosen, chief investment officer at Angeles Investment Advisors, an consultant to institutions. “He has done well and he's a good guy.”

Mr. Ivascyn, 44, burnished his reputation during the period following the 2008 financial crisis with bets on mortgage-backed securities. The fund, co-managed by Alfred T. Murata, has had between 40% and 55% of its money in non-agency mortgages in recent years, Eric Jacobson, an analyst for Morningstar Inc., wrote in an e-mail. The securities, which are not backed by Fannie Mae, Freddie Mac or Ginnie Mae, amounted to a bet on a housing recovery since they gain as house prices rise and defaults decline. The non-agency total has included commercial mortgage-backed securities, which have encompassed as much as 20% of the fund, Mr. Jacobson said.

“Non-agency mortgages were a home run for this fund,” he said.

Mr. Ivascyn, a native of Worcester, Mass., would appreciate the baseball metaphor. Mr. Simon, who was Ivascyn's boss for his first four years at Pimco, said he has an undying loyalty to all of Boston's major sports teams &mdash the Celtics, Bruins, Red Sox and the New England Patriots — to the irritation of colleagues whose teams don't win as much.

“He's that Boston guy nobody likes,” Mr. Simon joked.

Pimco declined to make Mr. Ivascyn available for an interview.

Before joining Pimco in 1998, Mr. Ivascyn worked at Bear Stearns Cos. Inc. in the asset-backed securities group, and at T. Rowe Price Group Inc. and Fidelity Investments. He has a bachelor's degree from Occidental College and a master's of business administration from the University of Chicago.

What does the future hold for Pimco?

Mr. Simon said Mr. Ivascyn's forte is dissecting complex credit structures. His fund, which invests in everything from bank loans to emerging-markets debt, carries more risk than a typical core bond fund, such as Pimco Total Return. With a yield of 5.4%, Pimco Income is aimed at investors looking for a high level of current income.


As the subprime mortgage crisis toppled financial firms in 2008, Pimco Income had limited exposure to these non-agency securities, Ivascyn told in 2012. When other investors dumped the securities as prices plummeted, Mr. Ivascyn, who heads Pimco's mortgage credit portfolio management team, added to his position.

The timing was perfect. Prices of the securities rose 32% in 2009 and 21% in 2010 before falling 4% in 2011, estimated Bryan Whalen, a portfolio manager at TCW Group Inc., whose funds have benefited from non-agency MBS.

The housing rebound beginning in 2012 helped reduce the number of defaults on non-agency mortgages, making more cash available to investors and boosting their prices. They jumped 28% in 2012 and 10% last year, Whalen said.

“We didn't die on the way in and we made a ton of money on the way out,” Mr. Simon said of the credit crunch. “And a large part was due to Dan.”

Morningstar this month named Mr. Ivascyn and Mr. Murata fixed-income managers of the year for 2013. The group praised the duo for putting up strong results during difficult bond markets.

Pimco Income has two separate buckets to cope with different economic scenarios, Mr. Murata told Morningstar in an interview on its website. One contains high-yielding assets that can do well if the economy strengthens; a second has defensive investments, such as U.S. Treasuries and Australian government bonds, that will hold up in a weaker economy.

Mr. Ivascyn said non-agency securities have been the most attractive choice in the riskier category, which also includes high-yield and emerging-markets bonds. Non-agency bonds are “a sector that remains attractive, but its attractiveness versus other credit-related sectors has narrowed,” he told Morningstar.

Mr. Ivascyn has reduced the fund's exposure to non-agency securities over the past several months. He said he has been adding to holdings of Treasuries as interest rates have climbed.

“For quite some time we had next to no exposure to U.S. Treasuries because we thought yields were low versus other things we could do,” he said.


Mr. El-Erian, 55, who rejoined Pimco in 2007 and also held the title of co-CIO with Mr. Gross, was widely viewed by investors as the heir apparent. Mr. El-Erian told Mr. Gross that he was leaving to recharge his batteries and write a book.

Mr. Gross told Bloomberg News that he intends there to be a number of heirs apparent. He plans on appointing other deputy CIOs specializing in equities, global bonds and other asset classes. Last week, Andrew Balls, the head of European fund management, was named along with Mr. Ivascyn as deputies to help oversee Pimco's $1.97 trillion in assets.

Steven Roge, a money manager with R.W. Roge & Co., which oversees more than $220 million, said Mr. Ivascyn is his favorite horse in the race.

“He is my No. 1 pick to succeed Bill Gross,” said Mr. Roge, who places money with Mr. Ivascyn's fund. “He has been their most successful investor.”

(Bloomberg News)


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