Pimco CEO El-Erian resigns

Pacific Investment Management Co. will have a new head as Mohamed El-Erian unexpectedly resigned from the top job. While a succession plan was detailed, no reason was given for his departure.

Tom Lauricella, Julie Steinberg and Min Zeng wrote this piece for the Wall Street Journal:

Mohamed El-Erian abruptly stepped down as chief executive of Pacific Investment Management Co., the giant asset-management firm that emerged as one of the winners of the global financial crisis but has recently been hit by waning investor taste for plain vanilla bonds.

Mr. El-Erian will leave in mid-March after seven years at the helm of Pimco, which manages $2 trillion as a unit of Germany’s Allianz SE. He will remain on the German company’s International Executive Committee and will advise on global economic and policy issues.

The company has announced that Douglas Hodge will succeed Mr. El-Erian as chief executive.

His departure leaves Bill Gross, who founded Pimco in 1971 and oversees the world’s largest bond fund by assets under management, the Pimco Total Return Fund, as the sole public face of the company. Mr. Gross, Pimco’s co-chief investment officer with Mr. El-Erian since 2007, will become chief investment officer, the company said.

Reuters reported that the company didn’t offer a reason for the departure in a story by Svea Herbst-Bayliss:

The company did not give a reason for El-Erian’s departure, but the bond market was hit hard last year as investors moved money to stocks from bonds.

El-Erian will stay on to consult at the German insurer, but the news that he would leave Pimco took the investment community by surprise.

El-Erian, 55, is well known due to his frequent appearances on cable television and at investment conferences.

He sent out an email announcing his departure that failed to shed more light on the decision.

Bill Gross – the co-chief investment officer and co-founder of Pimco and manager for the $237 billion PIMCO Total Return Fund – tweeted “PIMCO’s fully engaged. Batteries 110 percent charged. I’m ready to go for another 40 years!”

Two years ago, Gross, now 69, told the New York Times, “Mohamed is my heir apparent.”

Bloomberg’s Alexis Leondis and Charles Stein pointed out that El-Erian was responsible for helping Pimco to diversify:

El-Erian, widely viewed as the successor to Gross in running the Pimco Total Return Fund (PTTRX:US), has led Pimco’s push to diversify beyond bonds, starting an equity unit and opening products such as exchange-traded funds and hedge funds in anticipation of an end to the three-decade bull market for fixed income. His resignation comes after record client redemptions at Pimco Total Return and a setback to the equity unit following the departure last year of Neel Kashkari, hired in 2009 to lead the stock expansion.

 “For Pimco, it is a disappointment,” Kurt Brouwer, chairman of Tiburon, California-based Brouwer & Janachowski Inc., who has invested in Pimco funds since the 1980s, said in a telephone interview. El-Erian “ was brought in as the next generation of management and obviously it didn’t work out.”

El-Erian, who made a name for himself investing in emerging-market debt early on in his career at Pimco, is part of the firm’s investment committee that sets strategy guidelines. He is listed as manager of eight mutual funds with $10.2 billion, according to data compiled by Bloomberg, a fraction of the firm’s overall assets. His departure won’t prompt an exodus from Pimco funds, said Brouwer.

USA Today posted the Associated Press story by Bernard Condon that chronicled El-Erian’s storied investment career:

El-Erian helped steer the company through the tumult of the financial crisis and helped develop its concept of the “new normal” — a widely cited idea that economies will grow more slowly after the crisis and big investment returns will be hard to come by. He is widely published, and is the author of a 2008 best-seller “When Markets Collide.”

Pimco has struggled in the face of rising interest rates in the past year. Investors have pulled billions of dollars out of its flagship bond fund, the Pimco Total Return Fund. In the past 12 months, the fund lost 4 percent, according to FactSet.

The son of an Egyptian diplomat, El-Erian worked at the International Monetary Fund for 15 years, eventually rising to deputy director. After a stint at Citigroup, he joined Pimco where he made a name as a shrewd investor in emerging market bonds.

El-Erian then left to head a group that invests Harvard University’s endowment and other related money. He bought emerging-market stocks, and used derivatives to bet on stocks elsewhere and on commodities. He rejoined Pimco in 2008.

I’m sure there’s more to the story since Gross is keeping his job. Or maybe El-Erian will turn up at the head of another asset manager. It will be interesting to see where he ends up. But one thing’s for sure, we likely haven’t seen the last of El-Erian.