September 12, 2007 / 12:40 AM / 10 years ago

El-Erian quits Harvard, rejoins Pimco as co-head

NEW YORK/BOSTON (Reuters) - Mohamed El-Erian, the highly regarded emerging markets specialist who manages Harvard University’s $34.9 billion endowment, on Tuesday said he is resigning from the job after less than two years to return to bond-fund giant PIMCO as co-chief executive.

El-Erian, who took the Harvard job after a lengthy search, will rejoin Pacific Investment Management Co., one of the world’s biggest and most influential fixed-income managers, to share the top jobs of CEO and chief investment officer.

El-Erian, 49, will join CEO Bill Thompson, 62, and PIMCO founder and chief investment officer Bill Gross, 63, as a member of the firm’s senior management team.

El-Erian said he is returning to southern California to be closer to his family. He will step down at the end of the year, the university said in a statement.

PIMCO is based in Newport Beach, California.

Last month, Harvard, already America’s richest university, said its endowment returned 23 percent for the fiscal year ended June 30, its best overall performance in seven years.

El-Erian made a name for himself as head of PIMCO’s emerging-markets division, and his bets on those markets were instrumental in boosting Harvard’s returns.

At Pimco, he made huge investment bets in emerging markets, most specifically in Brazil and Russia bonds, which were some of the best performers in the credit markets in 2002 and 2003.

El-Erian was born in New York, educated in England, and is a veteran of the International Monetary Fund staff in Washington.

He came to Harvard in early 2006 after Jack Meyer, who had been Harvard’s top investment officer for roughly 15 years, left to start a hedge fund.

For years the university’s money management arm had been dogged by complaints about the multimillion dollar pay packages of its managers, and this summer one of its bets soured when Sowood Capital, a hedge fund the school invested with, collapsed.

El-Erian rejoins Pimco at a time when the carnage in the credit markets and the turmoil on Wall Street continues.

Pimco’s chief investment officer Bill Gross, who last year forecast a Fed rate cut too early, is finally seeing his calls unfold as central banks around the world have had to inject liquidity into the financial system to avoid a severe credit crunch.

Gross has repeatedly warned that the U.S. housing market will slow significantly and that the leverage in the credit markets has grown to monstrous levels, both of which will put the Fed in a very difficult position.

Financial markets now overwhelmingly anticipate a rate cut when the Fed meets next week for its policy meeting, with some hoping for a 50 basis point reduction in the fed-funds rate.

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