Pimco’s El-Erian Resigns after six years as the firm struggles to stem record redemptions from its main fund

Pimco’s El-Erian Resigns as Hodge Named Chief Executive

Mohamed El-Erian, responsible for leading Pacific Investment Management Co.’s transformation from the world’s biggest bond manager to a diversified investment firm, resigned after six years as the firm struggles to stem record redemptions from its main fund.El-Erian, 55, will leave his dual roles of chief executive officer and co-chief investment officer in mid-March, according to a statement today from Allianz SE (ALV), the Munich-based parent of Pimco. Douglas Hodge, the firm’s operating chief, will become CEO, and money managers Andrew Balls and Daniel Ivascyn will become deputy investment chiefs, overseeing the firm’s $1.97 trillion alongside CIO Bill Gross.

El-Erian, widely viewed as the successor to Gross in running the Pimco Total Return Fund (PTTRX), 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’s Funds

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.

“As an investor this is not an issue for me,” Brouwer said. “I cannot imagine anyone saying, ‘I will not be in a Pimco fund because El-Erian is not there.’”

In picking Hodge as CEO, Pimco is separating its day-to-day operations from its money-management function and leaving Gross firmly in charge of investment decisions. Unlike El-Erian, Hodge has not risen through the investment side of the firm.

The appointment of Ivascyn and Balls as deputy CIOs elevates the position of the two money managers as clients are fleeing traditional bond funds and seeking ways to earn higher returns in the bond market. Pimco’s biggest fund, Gross’s $237 billion Total Return Fund, had record redemptions last year as clients pulled an estimated $41.1 billion. Pimco as a whole had $39 billion in net redemptions during the third quarter.

Batteries Charged

“Pimco’s fully engaged. Batteries 110% charged. I’m ready to go for another 40 years!” Gross, 69, wrote in a Twitter message today.

El-Erian, the son of an Egyptian diplomat who’s fluent in English, French and Arabic, joined Pimco in 1999 as a senior member of the portfolio management and investment strategy group. He left in 2006 to serve as CEO of Harvard Management Co. and revamp the university’s endowment before rejoining Pimco in 2007. He also worked at the International Monetary Fund for 15 years, and served as the IMF’s deputy director from 1995 to 1997. El-Erian received a bachelor’s and master’s degree in economics from Cambridge University as well as a Ph.D. from Oxford University.

‘New Normal’

Along with Gross, he was responsible for coining the term “new normal” in 2009, which describes an era of lower returns, heightened government regulation, diminishing U.S. clout in the world economy and a bigger role for developing nations. El-Erian wrote a book in 2008, “When Markets Collide,” that was a New York Times bestseller, and regularly writes commentaries for newspapers and websites on topics ranging from the global economy to education. He also appears frequently on financial news programs on CNBC and Bloomberg Television.

“I have been extremely honored and fortunate to work alongside Bill Gross, who is one of the very best investors in the world,” El-Erian said in a statement. He did not respond to an e-mail or a phone call seeking comment.

He will stay on the international executive committee of Allianz and advise the board of management on global economic and policy issues, reporting directly to Allianz CEO Michael Diekmann, according to the statement.

To contact the reporter on this story: Alexis Leondis in New York at aleondis@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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