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By Miriam Sjoblom, CFA and Jeremy Glaser | 11-20-2017 01:00 PM

PIMCO in a Really Strong Position

Three years after the departure of Bill Gross, the firm is holding on to its talent, and flows have stabilized.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm joined today by Miriam Sjoblom, she is a director on our manager research group and she covers PIMCO. It's been about three years since Bill Gross left the firm. She is going to give us an update on where the firm is.

Miriam, thanks for joining me.

Miriam Sjoblom: Good to be with you, Jeremy.

Glaser: It's been three years. Let's take a look, big picture. I know there were a lot of concerns after he left of how PIMCO would fare. Where do you see the firm standing today?

Sjoblom: I think, going back, looking back three years, it was really a seismic event when Bill Gross left. We were concerned that outflows picked up dramatically; what was that going to do to PIMCO's profitability; would they have to make cuts to resources and staff; would there be friction among some of the new leadership of the organization that would cost to other departures. It was really pretty unsteady situation back then.

When you look three years later and look at things today, the firm is actually in a really strong position. We've seen really good stability among some of the key investment team decision-makers there. Flows have stabilized. We still see some outflows from PIMCO Total Return, but overall, the firm has started growing again, a little more than a year ago. Where things stand today, PIMCO is in pretty good shape.

Glaser: Let's talk about that staff then, that was a concern. What does that look like? Have we seen tremendous turnover?

Sjoblom: We did see the investment team shrink a little bit over the past three years. But when you look at the investment leaders, most notably, the CIOs, such as Mark Kiesel on Investment Grade Credit, Mihir Worah, who overseas Real Return and Multi-Asset, all those CIOs have been fairly stable over the last three years. When you look at the next level down of the key investment staff who are supporting those people, we've also seen some really good stability there among PIMCO's up-and-comers.

Glaser: Let's look at flows. You mentioned that over the last year they have turned positive. Where are those flows going? Is it all a PIMCO Income story or are there other places that are getting money as well?

Sjoblom: Well, you are right. The big growth story at PIMCO has been PIMCO Income. That whole strategy has just experienced phenomenal growth. It actually surpassed Total Return as the biggest strategy that the firm runs earlier this year. But that isn't the only area that's been growing at PIMCO. They've actually had pretty strong growth in their Global Investment Grade Credit strategies. And now, when you look at the mix between Income, Investment Grade Credit, and Total Return, it's more evenly balanced among those three strategies as the biggest strategies at the firm. 

We've also seen some really good growth out of the firm's alternative business. And I'm not talking about liquid alternatives here. I mean, more hedge funds and private debt strategies. It's still not a huge part of PIMCO's AUM overall, but it's a very profitable part. That's good for the business to have those revenues as well.

Glaser: I know this can be difficult to measure over only three years, but when looking at performance, are there any signs that the firm is lagging or that the immediate aftermath has caused some performance issues?

Sjoblom: No. Overall, we still continue to see some pretty strong results from most of the firm's strategies. Not necessarily in every year; 2016 was a tough year for some strategies. When you look at Income, it's continued to be quite dominant in the multisector bond category. Total Return, where we saw the biggest problem with outflows, they have actually over the past three years landed in the best-performing quintile of the intermediate-term bond category. On the whole, pretty good results.

Glaser: What's next for PIMCO?

Sjoblom: We are watching a few things. PIMCO got a new CEO about a year ago, Manny Roman, who came from Man Group. And Manny has got a background in alternatives. PIMCO has been looking to grow their alternatives business. We're going to watch for signs for, how do his plans impact the strategies and investments teams that we cover. We don't see any sign that we should be concerned at this point, but it's something we are watching. PIMCO Income continues to grow. We will continue to monitor whether we think the firm still has the ability to execute on that strategy at larger size. Again, not concerned at this point, but it's something we will continue to watch and monitor.

Glaser: Overall, the parent rating was recently moved up to positive. Were some of these things that we just mentioned the big drivers behind that?

Sjoblom: Yes. I mean, we see more business stability, good stability in the investment team in a sense that the leadership there is able to work together and really focus on executing for clients.

Glaser: Miriam, thanks for the update on PIMCO today.

Sjoblom: You're welcome, Jeremy.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.

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