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Neither PIMCO's New CEO, nor Parent Allianz, Plan to Upset Their Apple Cart

Both Manny Roman and Allianz know a good thing when they see it.

Eric Jacobson, 05/02/2017

In July 2016, PIMCO announced that it had hired former head of the LSE-listed Man Group EMG, Emmanuel "Manny" Roman, as its CEO effective Nov. 1, 2016.

Now that Roman's been on the job for several months and is settling into his new role, it's a good time to look at his likely impact on the firm. We have met with or spoken to Roman a couple of times since he took over, and our impressions have been largely positive.

For starters, he and group CIO Dan Ivascyn appear to be on the same page when it comes to some big-picture items. Roman says that they're both committed to maintaining a performance-based model for the firm, as opposed to others that might be driven more by asset growth, for example. Neither wants to revisit the defunct experiment of branching out into active management of equities, either, and they're both determined to avoid letting the firm become a collection of siloed groups.

On the other hand, both see room to invest more in technology and quantitative capabilities. Although PIMCO is widely considered to have some of the best execution--and ostensibly lower transaction costs--of its asset-management peers, Roman and Ivascyn see room to improve. They envision using those capabilities--including the possible hiring of additional quant specialists--to help optimize portfolio construction and gain so-called risk-factor exposures in the cheapest, most efficient way.

We'll be anxious to keep a keen eye on any such efforts. Driving portfolio efficiency and better execution makes perfect sense. To the degree that the firm looks to gain a competitive advantage from high-speed trading, though, we'd want to hear a case for how they might do it.

Roman also talked about the aforementioned quant effort in terms of crafting new systematic, risk-factor-based offerings for clients. That isn't surprising either, given that Man Group has already been doing similar things via some of its subsidiaries, such as AHL and Numeric, and they've been among that firm's notable areas of growth.

Raising Some Antennae
Such products are often packaged in hedge fund form, though, and one of the very first questions we heard after Roman's hiring was whether he was going to ramp up the firm's alternatives business. The Man Group, which manages more than $80 billion, is known mostly for its offerings in the alternatives space, including hedge funds, so the question didn't come out of left field. Roman has also spoken of expanding PIMCO's efforts in private-debt strategies, where he sees more opportunities and client requests.

Alternatives have already been a focus at PIMCO for the past several years, as evidenced by their more than $20 billion combined hedge fund and private debt/equity platform, so it wouldn't really represent a departure from PIMCO's business strategy. But it has understandably led some to wonder whether building it up was part of the reason Roman was brought on board. It's definitely an issue that could resonate with clients of PIMCO's more-traditional strategies--including those of most of its mutual funds--who would have reason to worry if it seemed the firm were devoting more attention to alternative strategies. Most have more-lucrative fee structures, so at least on paper it would be tempting for most firms to devote much more attention to them.

Eric Jacobson is Morningstar's director of fixed-income research and an editorial director for mutual fund content.

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