Gross' equity expansion proving difficult

Michael Diekmann, whose Allianz SE owns Bill Gross's Pacific Investment Management Co., said a plan by the bond-fund manager to expand into equities is proving harder than expected.
NOV 04, 2013
Michael Diekmann, whose Allianz SE owns Bill Gross’s Pacific Investment Management Co., said a plan by the bond-fund manager to expand into equities is proving harder than expected. Pimco’s stock funds, which have attracted less than 1% of firm-wide assets since the effort started almost four years ago, would be considered a success for a smaller asset manager, Mr. Diekmann, who is chief executive officer of Munich- based insurer Allianz, said in an interview Tuesday. Given that Pimco oversees about $2 trillion in mostly bond assets, the amount it attracted into stock funds is less significant, he said. “It’s obviously more difficult than we expected it to be, but I’m very happy that they do this in a professional way, and not getting into sort of acquisition mode,” he said. “I don’t declare victory yet, but neither do I say it’s been a failure,” said Mr. Diekmann, whose Allianz in 2000 acquired a stake in Newport Beach, California-based Pimco, the world’s biggest bond firm. Mr. Gross, whose name is synonymous with fixed-income investing, has sought to diversify into stocks and other assets in anticipation of an end to the three-decade bond rally. Unlike rivals such as BlackRock Inc., which made acquisitions to move beyond bonds, Pimco chose to grow by adding managers and strategies one at a time. Pimco’s stock push has lost momentum just as investors are fleeing the bond market, removing an estimated $120 billion from fixed-income mutual funds since May. Kashkari Departs Pimco also faced a setback this year with the departure of Neel Kashkari, who was hired in 2009 to oversee the unit’s expansion after earlier attempts to add stocks fizzled. Pimco has yet to name a replacement for Mr. Kashkari, who stepped down in January saying he wanted to pursue a career in public service. The equity unit’s mutual funds account for about $3.8 billion of Pimco’s $1.97 trillion in assets. “If you’ve been always a fixed-income manager, you cannot turn into an equity manager in one year,” Mr. Diekmann said. Led by Co-Chief Investment Officers Mr. Gross and Mohamed El- Erian, Pimco has a top-down macroeconomic view that helps guide all of its investing decisions -- a departure from how stock pickers usually choose securities. Pimco unsuccessfully tried to expand into equities in the 1980s, when its bond traders overwhelmed a handful of equity managers at strategy meetings, and again in the late 1990s, when Pimco’s then-parent company created an equity unit separate from the bond business to take advantage of the Pimco name. “Pimco continues to make important progress in our multi- year evolution,” Chief Operating Officer Doug Hodge said in a statement. “Pimco’s equity offerings span a range of strategies and styles, including the StocksPLUS suite of funds, and our active long-short, dividend, emerging market and deep value equity strategies, totaling more than $50 billion in assets under management.” Organic Growth Mr. Hodge said Pimco plans to proceed with its strategy of “organic growth” by adding resources and introducing additional strategies in equities, alternatives, ETFs and other areas. Pimco’s StocksPLUS funds, which attempt to beat the stock market by using a combination of bonds and derivatives, predated the firm’s equity expansion. Mr. Diekmann said he’s patient with Pimco’s slow growth in equities and is happy with the firm’s decision to increase assets organically rather than by making acquisitions. He also said it’s beneficial to have top-down research available to the stock managers. “I’m not concerned about Pimco,” Mr. Diekmann said. “The only thing that would concern me is if your long-term performance would start to suffer.” (Bloomberg News)

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