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Fund Times: Harvard's El-Erian to Rejoin PIMCO

Plus, news on limited Vanguard fund reopenings, First Eagle Gold reopens, and more.

Morningstar Analysts, 09/17/2007

Fixed-income giant PIMCO has scored a coup in rehiring Mohamed El-Erian from Harvard endowment. El-Erian was hired by Harvard in October 2005 and took over as CEO in February 2006, after working at PIMCO for seven years. El-Erian rebuilt the university's endowment investment staff during his brief stint; the team had suffered when former head Jack Meyer left to found hedge fund Convexity Capital Management, taking 33 professionals with him. When he returns to PIMCO, El-Erian will occupy the newly created position of managing director, co-CEO (with Bill Thompson), and co-CIO (with Bill Gross). This is the first hire PIMCO has ever made directly to the managing director level.

El-Erian's return is a clear positive for PIMCO. At the time of his departure, El-Erian managed PIMCO Emerging Markets Bond PEMDX and was widely considered one of the leading investment minds at the firm. El-Erian's academic and government experience made him uniquely qualified to lead the emerging markets bond team. His success at Harvard's endowment, where he gained 23% in the year ending June 30, 2007, and reorganized the staff, and burnished his reputation.

While there already has been speculation that the move is an attempt by PIMCO to solidify succession plans should Gross decide to retire in the next several years, the firm made clear that there are no plans for Gross or Thompson to step down any time in the near future.

"Neither Bill Gross nor I at this time have any plans to step down, and in fact, have just been elected by PIMCO's Managing Directors for 5-year terms in our respective roles," said Thompson in a statement.

Rather, PIMCO has said El-Erian's return adds leadership depth and aids the firm in its attempts to further globalize its staff and investment strategies. In addition, PIMCO said his return contributes to the expansion of the firm's alternative investment options, an area in which Harvard gained renown.

Vanguard to Open Funds to High Rollers
In a recent column, Vanguard chairman John Brennan announced that several of the firm's now closed funds will reopen to Flagship level clients, those with $1 million or more invested with the firm. The funds reopening on Sept. 20 are: Vanguard Explorer VEXPX, Vanguard PRIMECAP VPMCX, Vanguard Capital Opportunity VHCOX, Vanguard Health Care VGHCX, and Vanguard Precious Metals and Mining VGPMX.

Brennan hopes that these limited fund openings will "generate a modest level of share purchases to offset the redemptions that occur naturally in closed funds. (Because) it is far more tax-efficient and cost-efficient to offset a fund's daily redemptions with incoming cash from purchases rather than by selling securities." Brennan also said that the firm will continue to carefully monitor cash flows into the five funds, and would close the funds again if it felt flows became troublesome.PAGEBREAK

First Eagle Fund Reopens to Goldbugs
Arnhold and S. Bleichroeder Advisers announced the reopening of First Eagle Gold SGGDX, effective Oct. 1. The fund closed on May 8, 2006, as then manager Charles de Vaulx thought that many areas of the gold mining industry had become too expensive and mergers had narrowed investment options. We thought this was a prudent decision at the time, but the fund's new manager Jean-Marie Eveillard has a modestly smaller asset base to put to work now, as the fund has seen some outflows lately. This fund has historically been a fairly pure gold play, so with Eveillard's long experience, we think it's a reasonable option for those seeking gold exposure.

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