Neel Kashkari, who was a Goldman Sachs investment banker before running… (Haraz N. Ghanbari / Associated…)
Bond mutual fund titan Pimco is jumping the fence -- into stock picking.
The Newport Beach firm, perhaps the world's best-known bond investor, said Monday it would expand into actively managed stock funds.
The company also said it had hired Neel Kashkari, who was in charge of the Treasury's bank bailout program until departing in May and dropping out of sight to a cabin in the Northern California woods.
Kashkari, a former Goldman, Sachs & Co. executive, will become Pimco's head of "new investment initiatives," including stock investing.
Pimco Chief Executive Mohamed El-Erian said the firm had been planning a push into stock funds for the last year but had delayed it because of the global financial crisis.
The decision to launch actively managed stock funds was a natural step in Pimco's evolution, El-Erian and Bill Gross, the firm's bond guru, said in a letter to clients. Pimco over the last decade has branched into passively managed ("index") stock funds, commodity funds and asset-allocation funds. Still, the bulk of Pimco's $940 billion in assets is in bonds.
Adding actively managed stock funds would give Pimco a bigger arsenal to compete against rivals such as BlackRock Inc., Fidelity Investments and other firms that manage an array of funds.
The move also could help keep investor assets at Pimco if the economy continues to recover and interest rates jump. That could make stocks more attractive than bonds to many investors, because higher rates would devalue outstanding bonds paying lower fixed rates.
Bond funds "are going to suffer when interest rates rise," said Geoff Bobroff, head of fund consulting firm Bobroff Consulting Inc.
Pimco's parent firm, the German insurance giant Allianz, already offers actively managed stock funds via a number of other subsidiaries. But none is managed by Pimco.
El-Erian said Pimco hired two stock fund managers from the Franklin Templeton funds to get the stock-fund business going. The two, Anne Gudefin and Chuck Lahr, were co-managers of the Franklin Mutual Global Discovery fund and follow a "deep value" style of stock investing.
Pimco considered buying a stock fund firm, but "we have a tradition of growing organically," El-Erian said.
The decision to hire the 36-year-old Kashkari to head Pimco's new-initiatives unit surprised some analysts, who noted that Kashkari has no experience with mutual funds. At Goldman Sachs, before taking a Treasury post in 2006, Kashkari was an investment banker.
The hire may be more fodder for critics of the "revolving door" between government and the private sector.
El-Erian said Pimco chose Kashkari to direct the new-initiatives thrust because of his reputation as "someone who gets things done." He will be overseeing new ventures but won't be managing money.
For Kashkari, the new job will be a return to civilization: Since spring he and his wife have been living in a cabin near the Truckee River to "detox" from his Washington experience, Kashkari told the Washington Post last weekend.