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By Jeremy Glaser and Eric Jacobson | 05-27-2014 11:00 AM

McCulley's Return Offers Comfort to PIMCO Investors

Having Paul McCulley back as a mentor to the new generation of PIMCO leaders is an advantage, but it doesn't erase worries about succession, says Morningstar's Eric Jacobson.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. PIMCO announced this morning that Paul McCulley will be rejoining the firm as chief economist and will also be occasionally chairing the investment committee. I'm joined today by Eric Jacobson, our co-head of active fixed-income strategy manager research, for his take on what this could mean for PIMCO and also for investors in PIMCO funds.

Eric, thanks for joining me, today.

Eric Jacobson: Good morning. Thank you.

Glaser: Let's start with what PIMCO is getting out of this deal, having McCulley come back into the fold. Why do you think that they were searching for someone to fill this role?

Jacobson: I think there are a few different reasons. I think certainly the biggest one is to some degree sort of a corporate decision that--especially with everything that's gone on earlier in the year with Mohamed El-Erian leaving and a couple others, very senior people either going on sabbatical or also leaving--it's just good for the optics and something good to show to investors that PIMCO has a very, very senior person onboard with a lot of experience sitting on the investment committee and influencing things. It's anything to help stabilize the conversation in terms of what's being going on there.

Glaser: Do you see McCulley as stepping in as a replacement for Mohamed El-Erian? Will they have similar responsibilities?

Jacobson: I don't think he or PIMCO necessarily view it that way overall. However, I do think that some of his responsibility is going to be acting as sort of a public face for the company, especially with regard to policy discussions and academic sort of discussions, but also because he has an investing background. But again, doing some public speaking, also being in front of a lot of different PIMCO clients and so forth, I think is going to be a big thing for him.

Glaser: McCulley had previously retired. What do you think got him to want to come back? Or what do you think his motivation is for getting back to the working world?

Jacobson: It's very interesting because one would think that not only with his retirement, but the fact that he almost certainly made plenty of money before he left, he doesn't really have, I'm sure, a need to come back.

However, he has always signaled that he has really enjoyed the sort of academic and policy and macro-related issues of being in this position, and I think he is very excited not to have what one might think of as the burden of having to be responsible for running so much money as a manager, which he did before he left. He was responsible overall for almost $500 billion, and now not having to worry about that, he gets to do the three things that he has described that he really loves to do, which he says are thinking, writing and speaking.

And I think being able to do that on a very, very big stage that is PIMCO, having the ability and knowing that he'll have the ability to really influence the direction of things at the company from an investment perspective, is probably exciting. It sounds like it's almost kind of the best of both worlds for him personally.

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