PIMCO Hires a New CEO
A new business leader shouldn't have any near-term effect on how the firm's funds are managed.
PIMCO announced on July 20 that it hired a new CEO, Emmanuel (Manny) Roman, most recently the chief executive of Man Group, a London-based asset manager focused on alternative investments. Roman will replace current CEO Doug Hodge in the role effective Nov. 1, 2016.
The firm embarked on a process earlier in 2016 to find an executive with a strong strategic management focus, and PIMCO says the effort eventually evolved into the quest for a new CEO. A committee of PIMCO executives, including CIO Dan Ivascyn and president Jay Jacobs, reviewed candidates, and the decision was approved by PIMCO's managing directors, after which Allianz signed off on the selection. The firm claims Hodge is supportive of the decision, and he will remain at the firm indefinitely as a senior advisor to help transition his responsibilities.
There's been no indication that business management was a problem during Hodge's tenure, but he presided over a difficult stretch for the firm, having taken over as CEO when Mohamed El-Erian, who had been both CEO and co-CIO, departed in January 2014. The firm had already endured high-profile outflows--Morningstar estimates that outflows at PIMCO Total Return (PTTRX) from April 2013 through January 2014 were more than $47 billion--and Hodge had been in the CEO role for roughly nine months when Bill Gross left the firm in late September of that year. Between then and June 30, 2016, meanwhile, the firm's overall assets under management sank to $1.5 trillion from $1.9 trillion. Notably, those figures include roughly $400 billion in presumably sticky assets the firm runs for parent Allianz.
Although Hodge's replacement was itself something of a surprise, Roman's hiring squares with the business strategy on which PIMCO has focused of late. The firm has been adamant about its commitment to its large business in more-conventional fixed-income strategies, including that backing its flagship PIMCO Total Return. It's not surprising that alternatives have become a larger and larger part of its focus in recent years, though. In addition to industry expectations that investor assets will eventually become even more bifurcated between indexlike offerings and specialized alternative investments--leaving more-conventional active management strategies behind--the latter are significantly more profitable.
There are elements of the decision that raise questions, though. Man Group has a history of growing through acquisition under Roman, whereas PIMCO has been all but allergic to such moves. The firm says that Roman was chosen because he's a good cultural fit with PIMCO, his hiring does not signal a major change in its business strategy, and that the firm isn't destined to become an alternatives-focused shop. The stated goal is to continue focusing on investment performance, expanding further into nontraditional areas, and growing PIMCO's business in Asia, Canada, Latin America, and the retirement space.
Notably, Roman assumes the CEO position despite the presence of Jacobs, whose ascent at least suggested he would eventually become a candidate for the role. Moreover, while Jacobs had previously reported to an executive committee, the firm felt it would be easier to attract top candidates with a more traditional structure, and Jacobs will now report directly to Roman. It's clearly worth monitoring whether Jacobs remains sufficiently content to stay with the firm. He is said to have been a member of the committee that hired Roman, and leaving PIMCO has historically been no easy decision given its considerable emphasis on keeping employees chained to the firm with lucrative compensation and profit-sharing. But while Roman has nearly 30 years of experience in the industry, he is only in his early 50s and would seem likely to have a lot of his career ahead of him.
While a shift this big could eventually have implications for the firm's management of client assets, there's no indication that Roman's hiring will have any near-term effect on how PIMCO manages money. As such, we maintain a favorable view of its investment-management capabilities in most areas, and our neutral Parent rating on the firm isn't changing as a result of Roman's hiring. And while we will continue to monitor the situation closely, we are not making changes to the Morningstar Analyst Ratings on any of its funds at present.
Miriam Sjoblom, CFA has a position in PTTRX.
Eric Jacobson has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.