Gross heir apparent El-Erian quits as Pimco sees redemptions

Mohamed El-Erian, widely viewed as the successor to Pacific Investment Management Co.’s Bill Gross, resigned after six years as the firm struggles to stem record redemptions from the world’s largest bond 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 yesterday from Allianz SE, 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 Gross.

El-Erian was the first Pimco manager to share the title of investment chief with Gross, a role that cemented his standing as the heir apparent to the firm’s 69-year-old founder. Responsible for transforming Pimco from a bond shop into a diversified fund manager, El-Erian spearheaded a push into stocks, a move Allianz CEO Michael Diekmann said in October was proving harder than he had expected. With clients pulling a record $41 billion from the $237 billion Pimco Total Return last year as interest rates rose, Pimco needs alternatives to traditional bonds to keep assets from shrinking.

“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.”

Investment Committee

El-Erian’s departure, coupled with the sabbatical taken by generalist money manager Chris Dialynas, means the firm’s investment committee that sets strategy guidelines will lose two of its permanent members. The committee incorporates Pimco’s world views into investment strategies for money managers. Gross, in a December interview posted on Pimco’s website, said a model portfolio established by the firm’s investment committee is the driving force behind the positioning of its funds.

“He’s definitely a loss to any company,” UBS AG Chairman Axel Weber said about El-Erian in an interview with Francine Lacqua at the World Economic Forum in Davos, Switzerland today, adding that he’s known him for “many years.” “Pimco had a tough year last year, there were outflows, and the whole asset management business has been very tough, in particular if you’re a bond investor.”

Harvard Stint

Under El-Erian, who made a name for himself investing in emerging-market debt early on in his career at Pimco, the bond firm more than tripled its assets under management as investors flocked to fixed income after the 2008 financial crisis. 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.’”

Gross brought El-Erian back to Pimco in 2007 following a stint running Harvard University’s endowment because he knew “Mohamed could fill an important part of the puzzle” in planning for succession, Gross said in a 2010 Bloomberg interview.

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