Pimco: The man who replaced Mohamed; Doug Hodge speaks on his new role as chief of the world’s largest bond house

February 28, 2014 1:30 pm

Pimco: The man who replaced Mohamed

By Chris Newlands

Doug Hodge, the newly appointed chief executive of Pimco, the world’s largest bond manager, has taken the reins of a company in turmoil.

Money continues to pour out of the 43-year-old bond house and front page headlines citing infighting between Bill Gross, Pimco’s 69-year-old founder, and its departing chief executive and co-chief investment officer Mohamed El-Erian refuse to go away.

Mr El-Erian’s sudden and unexpected resignation six weeks ago was a shock to those both inside and outside the Newport Beach bond specialist, triggering a reshuffle that ultimately parachuted Mr Hodge, the company’s former head of operations, into the role of chief executive. Mr Gross, meanwhile, took back the title of chief investment officer.

The hope is Mr Hodge, a near 25-year veteran of Pimco, will restore order to a company that haemorrhaged €35.6bn of net cash in the fourth quarter alone. “This is a watershed moment in Pimco’s history and one that requires all my attention,” says the 56-year-old.

Indeed, Mr El-Erian, one of the most celebrated professionals in the asset management market, is to walk away from the company in less than two weeks.

“Yes, Mohamed’s departure was a surprise,” Mr Hodge says. “But a selection committee formed of senior leaders at the firm, of which Bill was the chair, went through the process of looking at internal candidates and, if it was felt necessary, to look externally as well. I was their choice.”

Pimco also named six new deputy chief investment officers to work alongside Mr Gross: Dan Ivascyn, Andrew Balls, brother of the UK’s shadow chancellor Ed Balls, Mark Kiesel, Scott Mather, Mihir Worah and Virginie Maisonneuve, who was hired from Schroders in October to expand the bond specialist’s equities business.

On the face of it the appointments would suggest it takes six people to fill one man’s shoes. “No, we are not filling Mohamed’s shoes; we are doing something different,” says Mr Hodge. “We are organising ourselves in a way that is reflective of business conditions. We were moving down this path anyway.”

The establishment of six deputies also goes some way to allay fears as to who might take over from Mr Gross when he decides to step down. Mr El-Erian was expected to be that person.

“I would contend that, by having more people in this deputy role, it secures our future. There was this expectation that Mohamed would be the presumptive successor to Bill, but when you identify that person so far in advance of the actual event you obviously underwrite some risk,” Mr Hodge says.

“By having a larger number of deputy CIOs, any of whom could potentially move into the role of CIO at some point, we are able to safeguard our business.”

The former Salomon Brothers bond trader adds that despite the creation of this pool of “number twos” Mr Gross has been “very plain about his continued commitment” to Pimco. Indeed, just hours after Mr El-Erian announced his intention to quit, Mr Gross rather excitedly took to Twitter to declare that his “batteries are 110 per cent charged” and that he is ready to go “for another 40 years”.

Mr Gross has since told CNBC, the broadcaster, more realistically that he has “at least a good five years left” in him, but Mr Hodge says the intention was clear: “It was an unambiguous signal from Bill to say ‘I’m here, I intend to remain here, and I’m on the job for you’,” he says. “That was the message he very clearly wanted to convey. He wanted to remove any doubt, given Mohamed’s departure, about his own commitment.”

What is less clear, however, is why Mr El-Erian left the bond house so suddenly after 15 years. Reports abound that long hours – Mr El-Erian’s day started at 4.15am – and a frequently fractious relationship with Mr Gross prompted his resignation. Tensions were said to have exploded during one particular meeting in June during which the Pimco founder questioned Mr El-Erian’s investment recordin front of more than a dozen colleagues.

So did Mr El-Erian leave because of a spat? “No, I would reject that proposition at its very start,” says Mr Hodge, who himself arrives at the office before 6am. “We operate in a very competitive marketplace. Success and failure is measured in hundredths of percentages and one of the main reasons why we have been so successful is because we are a very competitive organisation. To maintain that competitiveness, however, there has to be a sense of intellectual challenge within the organisation.”

But rumours of wrangling continue, particularly as Mr El-Erian’s departure came after a difficult 12 months for Pimco during which its flagship $244bn Total Return fund lost nearly 2 per cent, its worst fall since the bond market rout of 1994. On Wednesday Allianz – Pimco’s owner – also reported full-year third-party outflows of €12bn from its asset management business in 2013, compared with €114bn of net inflows the previous year. Since Pimco makes up around 90 per cent of Allianz’s fund unit, the bond house accounted for the lion’s share of losses.

Mr Hodge says: “Look, Bill and Mohamed were partners. They were co-CIOs and literally sat next to each other, no further than you and I right now. They worked together fantastically well.”

So with all this talk of departures and infighting what of Mr Hodges’ own long relationship with Pimco? “I am not going anywhere,” he says simply. “Pimco had me at hello.”

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Curriculum vitae

Douglas Hodge

Born 1957

Education

1975-79 Dartmouth College, BA in economics

1982-84 Harvard Business School, MBA in general management

Career

1979-1981 Marketing representative at IBM, New York

1981-82 Marketing Representative at Magnuson Computer Systems, New York

1984-89 Vice-president, fixed income trader at Salomon Brothers, in New York and then London

1989-2002 Executive vice-president, account manager at Pimco

2002-09 Managing director, head of Asia Pacific at Pimco, Tokyo

2009-14 Managing director, chief operating officer, Pimco, Newport Beach

2014 – present Managing director, chief executive, Pimco

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Pimco

Founded 1971

Headquarters Newport Beach, California

Assets under management $1.92tn

Employees 2,474

Offices 12, including Newport Beach, New York, London, Munich and Hong Kong