Pimco's El-Erian: Investors should prep for 'major structural changes'

Investors should prepare for “major structural changes” as the economy shifts to consistently slower global growth, according to Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co. “Forget about being hostage to mindsets that are very cyclical and look broader, because there are some major structural changes -- there's some major realignment both at the national level and at the global level,” he said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “When you are on a bumpy journey to a new normal, the unthinkable and the improbable become probable.” Global growth will be below average during the next three to five years as developed economies struggle with mounting deficits and increased regulation in the wake of the 2008 collapse of credit markets, according to Pimco. Pimco's investment strategy has been to shift to higher- quality assets and pursue investments in different parts of the world, El-Erian said. The $234 billion Total Return Fund managed by Pimco co- founder Bill Gross has returned 13 percent in the past year, beating 64 percent of its peers, according to data compiled by Bloomberg. The Federal Reserve's decision to reinvest principal payments on mortgage holdings into Treasuries didn't assuage investor concern, and the central bank may not have the appropriate tools to address all of the economy's problems, according to El-Erian. Fed's Limits “We should not over-depend on the Fed,” he said. “The Fed does not have enough instruments for what we're looking at. You need other agencies to get involved. We're not getting any structural solutions.” The Fed reversed plans on Aug. 10 to exit from aggressive monetary stimulus and decided to keep its bond holdings level to support an economic recovery that it described as weaker than earlier anticipated. Central bankers adopted a $2.05 trillion floor for their securities portfolio, pivoting toward a quantitative target for monetary policy. Pimco, which has been synonymous with bonds for almost four decades, in the past year has created an equity mutual fund and a unit to invest in hedge, real estate and buyout funds. Newport Beach, California-based Pimco has also started 10 exchange- traded funds. The company, which managed more than $1.1 trillion of assets as of June 30, according to its website, is a unit of the Munich-based insurer Allianz SE.