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INVESTING

Key money manager returning to Pimco

September 12, 2007|Thomas S. Mulligan | Times Staff Writer

Star money manager Mohamed A. El-Erian is returning to Newport Beach-based investment giant Pimco in a move that puts him in line to take the helm of the company.

El-Erian, who left Pimco less than two years ago to run Harvard University's endowment fund, is coming back to the firm in the newly created post of co-chief executive and co-chief investment officer, Pimco said Tuesday.

The 49-year-old El-Erian will join Chief Executive Bill Thompson, 62, and Chief Investment Officer Bill Gross, 63, in what Thompson called "a powerful and experienced leadership triangle."

El-Erian earned a global reputation as a savvy investor in emerging-market bonds after he joined Pimco, formally known as Pacific Investment Management Co., in 1999. He was recruited by Harvard in October 2005 to take over its $35-billion endowment.

Under El-Erian, Harvard said its fund achieved a 23% return for the fiscal year ending June 30 -- the portfolio's best performance in seven years.

Pimco, with $693 billion in assets, is one of the world's largest managers of bond funds. Its Total Return bond mutual fund, managed by Gross, is a staple in many 401(k) retirement plans.

El-Erian's return is "a surprise, certainly, and a blow to Harvard and a great coup for Pimco," said Michael Rosen, principal of Santa Monica-based Angeles Investment Advisors, which advises pension funds and other institutional investors.

Although El-Erian's new title suggests that he will be heir apparent to Thompson and Gross, Thompson indicated that neither he nor Gross planned to depart anytime soon. Indeed, the two "have just been elected by Pimco's managing directors for five-year terms in our respective roles," Thompson said

Gross said El-Erian would "help position the company for the future."

El-Erian, who did not return a call seeking comment, said in a statement that reuniting with extended family on the West Coast was a factor in his return. He and his wife and daughter moved to Massachusetts but left behind numerous relatives on both sides of the family, Pimco spokesman Mark Porterfield said.

Thompson and Gross have kept up regular friendly contact with El-Erian since he left, but talks about his return started early this year and "got more serious about four or five months ago," Porterfield said.

The El-Erian announcement comes at a time when Pimco, which is owned by German insurance titan Allianz Group, seems to have silenced talk that it was losing its touch in bonds.

"Pimco has been saying for a long time that housing problems would lead to economic slowing," in turn spurring the Federal Reserve to cut interest rates, said Morningstar Inc. senior analyst Paul Herbert in Chicago. The firm's cautious stance on the economy and consequent subpar returns in some of its funds "led to questions about whether they were early or wrong," he said.

But in the last few months, as the housing downturn has worsened, Wall Street has come around to a consensus that the Fed would begin to ease credit -- vindicating Pimco's position, Herbert said.

Fed policymakers are expected to reduce their benchmark short-term rate next week.

El-Erian is the New York-born son of an Egyptian diplomat. He holds an Oxford economics degree and, before joining Pimco in 1999, spent 15 years with the International Monetary Fund, a lender to developing nations.

At Pimco, his huge bets on Russian and Brazilian debt produced hefty returns and attracted billions of dollars of new investment to the firm.

Beyond making money for its investors, Pimco prides itself on being a "thought leader" in the investment community, Rosen noted. The firm in May hired former Fed Chairman Alan Greenspan as a consultant.

Rosen said he expected El- Erian to move comfortably into a role as one of the firm's top communicators. "He's a voice worth hearing," Rosen said. "He's thoughtful and has a rare talent for synthesizing information."

Of El-Erian, Harvard spokesman John Longbrake said: "We wish him the best. We'd just prefer he stay longer."

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thomas.mulligan@latimes.com

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