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Fund Times

PIMCO High Yield Skipper Jumping Ship; Gross Taking Helm

Veteran Mark Hudoff is leaving PIMCO to join his predecessor, now at Hotchkis and Wiley.

Effective today, Bill Gross is in charge of the day-to-day operations of Fund Analyst Pick  PIMCO High Yield  as well as PIMCO Convertible  and PIMCO High Income (PHK), a closed-end fund.

Mark Hudoff, High Yield's manager since April 2007, resigned and will be joining Ray Kennedy--formerly his boss and head of PIMCO's high-yield effort--at Hotchkis and Wiley in July of this year. Hudoff was with PIMCO for 13 years and joined the firm as a credit analyst in the high-yield department. He founded and developed PIMCO's global high-yield practice in 2004, while also managing U.S. high-yield portfolios.

Bill Gross will take over portfolio management of at least four of Hudoff's funds until PIMCO can find a high-quality replacement. The firm tells us that they have opened up the search to both internal and external candidates. However, PIMCO says it is not in a hurry to find a replacement since Gross is reportedly excited about the opportunity to lead the fund.

Gross will lead a team of nine global high-yield portfolio managers, 30 credit research analysts, and 16 investment-grade portfolio managers. PIMCO says the strategy of the high-yield fund will not change and will continue to rely on PIMCO's bottom-up and top-down macroeconomic research.

We believe shareholders are still in good hands, as PIMCO has a deep research bench. However, this management change does raise eyebrows. Hudoff's was not a planned departure, and it's somewhat unusual that the firm didn't have a successor identified. Furthermore, this is the fourth departure of a well-known PIMCO manager in recent years who didn't appear to be suffering from obvious or major portfolio performance issues; the others were John Brynjolfsson, Sudi Mariappa, and Hudoff predecessor Ray Kennedy. That doesn't worry us with regard to the depth of firm expertise--we are familiar with many of PIMCO's lesser-known managers, and several are rock-star impressive--but it does raise the question of why such top-notch folks haven't wanted, or been able, to stick around longer.

Eric Jacobson, a fixed-income specialist and senior fund analyst with Morningstar, contributed to this report.

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