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Fund Spy

Taking Measure of Two Bond Giants

A visit to PIMCO and Western Asset Management elicited interesting findings.


As part of the due diligence Morningstar fund analysts perform on the funds and fund families we cover, we regularly visit fund companies. In mid-January, a few colleagues and I flew out to Los Angeles to visit two of the largest players in the fixed-income marketplace: PIMCO (which had nearly $750 billion in assets under management at the end of 2008, including $132 billion  PIMCO Total Return (PTTRX)) and Western Asset Management ($586 billion in assets, including funds in its own name, and those it runs for parent Legg Mason). The meetings we had at the two firms proved to be a study in contrasts, and in some respects this was underscored by how each firm fared in 2008's brutal market for bonds.

Take It From the Top: A Snapshot of Organizational Change
Both PIMCO and Western have seen significant changes at the top of their organizational structures, but for different reasons. In PIMCO's case, back in 2007, the firm's leadership anticipated the need to provide strong and credible succession planning for both then CEO Bill Thompson and for CIO Bill Gross. In an unconventional move, the firm hired former managing director and senior portfolio manager Mohamed El-Erian, then president and CEO of Harvard Management Company to serve in the new combined position of Co-CEO and Co-CIO beginning January 2008.

El-Erian had taken over as head of Harvard Management in February 2006, after working at PIMCO for seven years. During his short tenure there he rebuilt the university's endowment investment staff, which had suffered when former head Jack Meyer left to found hedge fund Convexity Capital, taking 33 investment professionals with him. El-Erian's return to PIMCO was clearly positive for the firm, as in addition to being widely considered one of the leading investment minds around, his academic and governmental experience made him well-qualified for the new role. Thus, in September 2008, when Thompson announced his retirement at the end of that year, we already knew PIMCO was in good hands.

Lawrence Jones has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.

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