Pimco Plans to Move Into Equity Management

It seems bond giant PIMCO, with nearly $850 billion under asset management and Mohammed El-Erian and Bill Gross calling the shots, is seriously considering a move into equity investing.

According to several media reports, Pimco is planning to build active equity management presence, possibly hiring an existing management team with a track record from rival asset managers. It is still unclear however, whether Pimco will choose to lift out an investment team from a rival or use its own talent.

But despite the business choice the world’s leading bond-fund manager will make, from a business perspective, the timing makes great sense. Investors are getting back into stocks as the market has rebounded from its March lows, and some are worried that the bond market is overheated. And with the markets lifting, Pimco is probably thinking asset allocation at this point as the strategy of distributing investments among various classes.

“Throughout PIMCO’s history, one of our strengths has been the ability to evaluate the full spectrum of global developments — economic, financial, institutional, legal, demographic, regulatory and geopolitical — all in a risk-factor framework,” Mr. El-Erian is quoted as saying on the company website.

“In October 2008, PIMCO launched a global multiasset strategy billed as a complete solution in today’s “new normal” investment environment…The strategy stands on three investment pillars: asset allocation, led by Mr. El-Erian; alpha strategies; and risk management. The portfolio has passive equity exposure backed by actively managed fixed income to obtain alpha, as well as exchange-traded funds and derivatives to gain certain market exposures.” [P&I]

While Pimco’s intentions of getting involved in equities isn’t exactly new news — as we recall, in September, Kiplinger’s ran a profile of Pimco, in which Bill Gross and El-Erian talked about potential expansion into equities — the fact that the firm is thinking of starting a stock-fund unit for the first time in its 38-year history and expanding its investment products into active equity management as well as some other asset classes, it’s a move that if implemented will certainly cause quite a stir in Wall Street and subsequently create a very strong new competitor in the space.

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