7 Ways PIMCO Can Increase Equity Assetshttp://www.fool.com/investing/general/2013/11/20/7-ways-pimco-can-increase-equity-assets.aspx John Leonard
November 20, 2013
PIMCO expanded into equities in 2009 for the same reason Noah built the ark before the rain. The "rain" for fixed income is the end of the 30-year bull market, which saw the 10-year yield fell to 1.4% in July 2012.
I'm not saying PIMCO should abandon its focus on fixed income, or that it won't continue to deliver superior performance in this area. Just the opposite, in fact. As falling interest rates will no longer provide a return tailwind, institutional and individual investors should begin to reach for "alpha" generated by active management after being content with "beta" from passive management for so long.
A high level of trust and name recognition. Contrary to popular belief, the No. 1 fear of consultants, fiduciaries, and advisors isn't death. It's losing a client as a result of recommending an unheard of manager that performs poorly.
Institutional class infrastructure. Few managers can match the global scale, deep bench, cross-asset research capabilities, and client service of PIMCO.
A focus on risk management, not just absolute performance. While every manager claims to do this, few actually do as evidenced by the poor performance in 2008. PIMCO manages risk on multiple levels, including a focus on value (which is inherently risk-averse), tail-risk hedging (this is a "performance drag" the same way homeowner's insurance is a "drag on your finances" until your house burns down), lower volatility, as well as an emphasis on a repeatable investment decision-making process.
By preserving assets during the inevitable bear markets, PIMCO can leverage the trust earned into increased fund flows and higher management fees. Moreover, these assets are much "stickier" as investors are less likely to leave during temporary periods of under performance.
The fall of Janus (NYSE: JNS) after the bursting of the tech bubble is a reminder of the perils of ignoring risk and going all-in in one sector. For example, despite a better-than-expected recovery, the current assets under management, or AUM, of about $167 billion is almost half of the average AUM of about $300 billion in 2000. Janus even hired a former PIMCO chief operating officer to build out its fixed-income department.
Janus is less desperate to sell to a larger manager after Japan's second largest life insurer, Dai-ichi Life Insurance, bought 20% of the company.
I am aware PIMCO already excels in the area of client communications. This suggestion is merely to stress its importance by providing context. The recent hiring of Virginie Maisonneuve from Schroders should provide much-needed stability and direction after its former head of equities left for the less than greener pastures of politics.
The most successful advisors make a conscious decision to only work with a few partners in each asset class. If PIMCO can become one of these trusted partners, it should enjoy even greater asset "stickiness."