By Svea Herbst-Bayliss
BOSTON Jan 21 Mohamed El-Erian, heir apparent
to Pimco co-founder Bill Gross, will step down as chief
executive and co-chief investment officer, raising questions
about the future course of Pacific Investment Management Co, the
world's largest bond fund manager.
Neither the company, which announced the changes on Tuesday,
nor El-Erian gave a reason for the departure, which comes at a
time when many investors are turning their backs on the kind of
bond investments Pimco is famous for offering. Customers
withdrew $41.1 billion of money from Pimco's flagship Total
Return Fund last year, a record amount for the $2 trillion
manager, according to investment research firm Morningstar.
El-Erian, 55, had increasingly been Pimco's public face,
appearing regularly on cable television and at industry
conferences. Bill Gross, 69, who built Pimco over the course of
decades into the colossus it is today, said two years ago that
when he retired he expected El-Erian to take over.
On Tuesday, Gross tweeted "PIMCO's fully engaged. Batteries
110 percent charged. I'm ready to go for another 40 years!"
The departure reverberated around the investment industry
where Pimco plays an outsized role. Jeff Tjornehoj, senior
research analyst at Lipper, said "Mohamed El-Erian helped set
the strategic direction of the company and it certainly makes a
difference when someone who is used to making such headlines
leaves a company."
He added: "We don't know what kind of impact it will have
yet but it will have an impact."
Douglas Hodge, chief operating officer, will step into the
chief executive role when El-Erian leaves the firm in mid-March,
Pimco said in a statement. Gross, who shared the title of
co-chief investment officer, will become the sole CIO.
Andrew Balls and Daniel Ivascyn, long seen as rising stars
at the firm, will be deputy chief investment officers,
positioning them for a possible promotion to the CIO spot when
El-Erian will remain a consultant at Allianz, the
German insurer that owns Pimco.
El-Erian himself sought to quell speculation that he would
be the next Gross. Two years ago he told Reuters, "Bill's not
going anywhere. I often joke that he will outlast me. I would be
considerably worse off, in every single way, if Bill wasn't
A SECOND TIME LEAVING
Trained as an economist, El-Erian rose to a deputy director
spot at the International Monetary Fund before moving to Pimco
in 1999. In 2006, he became chief executive of Harvard
University's investment arm, racking up a 23 percent gain in his
first year on the job there.
Gross wooed him back to Pimco just before the financial
crisis. Soon after he left Harvard, the Ivy League university's
endowment tumbled 27 percent, a drop that some critics said
El-Erian deserves at least some of the blame for.
In 2013, the $237 billion PIMCO Total Return Fund dropped
1.9 percent, its first annual loss since 1999 and its worst
performance since 1994, according to fund data firm Morningstar.
The performance beat just 40 percent of its peers, Morningstar
data showed [ID: nL2N0KD156].
The fund has underperformed the benchmark Barclays U.S.
Aggregate bond index in just 7 of the 25 full years that it has
existed, Morningstar data show.
For years, the Total Return Fund, managed by Gross, was
among the industry's best performers. It has posted an
annualized gain of nearly 8 percent since its inception on May
11, 1987. That period was marked by broad gains in bond prices
as interest rates globally fell, but the fund also beat 97
percent of peers, according to Morningstar data.
As the news spread of El-Erian's departure, he emailed
friends, including journalists, about his intention to leave,
but failed to shed more light on the decision.
With El-Erian's departure, investors will shift their focus
to Hodge and the two deputy chief investment officers.
Ivascyn joined Pimco in 1998 and is head of the firm's
mortgage credit portfolio management team and a lead portfolio
manager for Pimco's alternative investment strategies, Pimco
said. Ivascyn and Alfred Murata, co-managers of the $29.9
billion Pimco Income Fund, won Morningstar's 2013 U.S.
Fixed-Income Fund Manager of the Year award. The fund rose 4.8
percent last year, beating 82 percent of peers, according to