At last year's Morningstar Investment Conference, a sunglassed Bill Gross was the star for how he looked and what he said — the dark glasses and a dark mood, in which he criticized the media while defending his stewardship, and the recent performance, of the PIMCO Total Return Fund (PTTRX).
(See Sunglasses-Wearing Bill Gross Says He's a 'Cool Dude,' Forecasts 3%-5% Return and What's Up With Bill Gross? Morningstar Crowd Baffled.)
During the Friday keynote at the Morningstar show, CEO Doug Hodge and Group Chief Investment Officer Daniel Ivascyn bravely flew the PIMCO flag.
"We all owe Bill Gross accolades, but nine months after his departure … our narrative is back to where it's always been," Hodge said. "Clearly we had a pivotal moment in our history; Bill Gross was an iconic investor," but now PIMCO's narrative includes delivering risk-adjusted investment performance and service, he said, both of which are crucial as investors approach a time of "heightened volatility; we're at an inflection point" regardless of when the Federal Reserve raises rates.
As for where PIMCO stands nine months after Gross left for Janus — and 18 months after Mohammed El Erian resigned as CEO and co-chief investment officer — Hodge said first that "we all knew Bill Gross was going to leave at some point" and that "we were ready for his departure."
However, Hodge said "we've retained key talent" at the firm. Ivascyn noted that "we've added some resources, most notably Ben Bernanke" — the former Federal Reserve chairman, who is now a consultant to the firm — and that with its 250 portfolio managers, "the team is functioning quite well."
Hodge joked that in fact "Bernanke might have been our best marketer between 2009 and 2014" with the Fed's appetite for bonds. Bernanke participates in PIMCO's quarterly investment forums, Ivascyn said, is a regular participant in investment committee meetings and holds "private conversations with individual portfolio managers" in which he discusses likely Fed actions.
It was at that last forum, Ivascyn said, that the theses of PIMCO's 'New Normal' were affirmed. That is, "despite the large amount of deleveraging" that has been accomplished, especially in the U.S., "debt is still high," Ivascyn said, and "demographics remain unfavorable across the developed world."
PIMCO expects volatility to "pick up in the U.S. later this year," after the Federal Reserve raises rates "in September or a little later, so that means more volatility to come." In their funds, he said PIMCO is "building up liquidity not because we're alarmists," but rather so that its portfolio managers can "go on the offensive for investors" when that volatility arrives.
However, under the deft questioning of Jon Hale, Morningstar's director of manager research, North America, Hodge spoke of the outflows that PIMCO has suffered since Gross left. (Morningstar published a special report on PIMCO's issues earlier this month; see ThinkAdvisor's take on the report, PIMCO Outflows After Gross' Exit 'Staggering': Morningstar.)
Following "this extraordinary demand for fixed income from 2009-2013," Hodge said, "our asset growth was extraordinary," though he argued that "we were also winning market share." At the high point, in March/April 2013, PIMCO was the largest asset manager in the world, with $2.1 trillion in assets, though he admitted that the "trajectory of those flows has changed significantly." Hodge said PIMCO now has $1.7 trillion in AUM.
