Tuesday, May 3, 2011

What It's Like to Work At Pimco

Pimco is one of largest and most widely-followed investment companies in the world.

The head of Pimco - Bill Gross - is probably the best known bond investor in the world, and for good reason: He manages the $237 billion Total Return bond fund for Pimco, which has consistently been one of the top performing bond mutual funds.

Bill Gross made headlines last month when he declared that yields on U.S. Treasury bonds are set to rise significantly once the Fed ends its quantitative easing program. While Random Glenings does not agree with Mr. Gross's view - I think that rates are more likely to move lower, not higher, as our economy deleverages - there is no doubt that Pimco is one of the most respected investors today.

So I read with interest a long article in this morning's Financial Times about Pimco.

In total Pimco currently manages about $1.2 trillion, but most of this is in fixed income securities. The company is attempting to diversify into equity management, but so far equities represent only $4 billion of their total assets under management.

According to the article, Pimco believes in rewarding portfolio managers for their contribution to the firm's overall performance, rather than paying for how much their particular fund produces in revenues.

They are ruthless in weeding out managers who they believe are not up to snuff: two-thirds of managing directors have held the job for less than 5 years. The constant demand for innovation and investment ideas creates a culture that Pimco calls "constructive paranoia".

Years ago a senior portfolio manager pointed out that portfolio management is relatively straightforward, but the research is hard.

Pimco's process recognizes this; either Bill Gross or Pimco CEO Mohamed El-Erian chairs Pimco's central decision-making investment committee. This group meets daily for two or three hours a day - an extraordinary commitment to investment research, which has clearly paid off.

I don't know whether they will be successful in migrating their investment process to equities - stocks are less amenable to collective thinking than bonds, regardless of the intensity of the process - but it would be hard-pressed to bet against them.