Pimco takes a longer view using Greek theatre unities

  • 12 Apr 2002
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In the long run you make money, is the counter-Keynesian view held at Californian fund manager Pimco. The Pimco approach is most visibly applied through its Total Return Bond fund, now worth $54bn and the largest bond fund in the world, contributing to Pimco's total assets under management of $254bn as at the end of March 2002.

Pimco, which also manages Eu130bn in fixed income assets of parent company Allianz Dresdner Asset Management, is seeking to expand in Europe.

Helping that effort is Emanuele Ravano, who joined the fund manager as executive vice president on October 1 2001, having been head of European fixed income at CS Asset Management. His task is to extend Pimco's Total Return approach to UK and European benchmarks, spearheaded by the Pimco GIS plc Euro Bond Fund, which was established in 1999.

Though still small at under Eu50m, the fund has achieved a three year gross return of 4.78% per annum, compared to the Salomon Euro Broad investment grade index return of 3.67%.

One reason why Ravano moved to fixed income specialist Pimco, he says, is because of its flat management structure, in which major decisions are referred to the nine-strong investment committee sitting at Pimco's Newport Beach headquarters in California.

"Pimco's assets under management have grown organically from zero to $254bn in 30 years, and they have kept their boutique feel," said Ravano.

He compared the unity of the decision making process to the three unities of classical Greek theatre, in which everything happens in one day, in the same place and involving the same characters. "The decision making process at Pimco is fast, flexible and unique," he said. "It takes place in one location, in the same time zone and with everyone together. Offices in Sydney, Tokyo, Munich and London can refer to the wise men in Newport Beach, where every idea gets compared.

"The result is not the sum of ideas, but a solution based on the best picks. The result is a series of positions that avoid being correlated with other trades."

A fundamental tenet of the Pimco philosophy, first formulated by chief investment officer and founding father Bill Gross, is to take a long term outlook beyond the immediate six or 12 months.

To help the process, every year around about May, Pimco management meet for a week to discuss aspects apart from market cycles, such as demographic trends, capital flows, productivity and current accounts. Guest speakers, including business school professors and analysts, are invited to give addresses.

The fact that pension trusts review their funds' performance every three years, helps shape the longer term view, said Ravano. "We might have as many as 15 strategic trades on. For example, since the end of 2001 we have taken the view that it is difficult for the US to raise rates and we have been long duration, at the front end of the curve. We have also been sellers of volatility at the end of 2001 when events were pushing it to all-time highs."

Ravano emphasised that Pimco's portfolios have many sources of return, despite the noise prompted by some of the fund manager's better publicised views. "We do not put too much risk on any one trade. Our strategies result in a lot of risk positions, filtering through our different mandates."

Swaps and derivatives have been embraced by Pimco. "There is a perception that derivatives are risky because they allow you to leverage, but the fact is that they allow you to take the risk you want," he said.

For example, derivatives allow a trade on an anomalous part of the curve to be isolated and made, which would not be possible in the cash or futures markets.

The collateralised, securitisation market also holds surprising attractions. "In 2001, Pimco was underweight the airlines sector. But even if we did not like the airlines sector, the EETC securitisation structures allowed investors to own the airplanes and pick up spread without the same amount of systemic risk."

Ravano's long term view on Europe is that the investment culture is progressing.

"The culture of investing is changing and becoming more specialist. After the dominance of the big bank-tied asset managers, this is the time for the specialist boutique firms."

  • 12 Apr 2002

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