PIMCO Nabs Top Mutual Series Duo

On Monday PIMCO, the shop known for its bond expertise, announced three new hires, including Anne Gudefin and Charles Lahr, who will join the firm as portfolio managers for global equities.

The pair comes from the Mutual Series Group of Franklin Templeton Investments, where they were comanagers of the  Mutual Global Discovery Fund (TEDIX). That fund is home to $16 billion, and each runs additional billions of dollars, so the change is certainly notable.

The third addition, Neel Kashkari, resigned in May from his post as a U.S. Treasury Department interim assistant secretary for financial stability in charge of the government's $700 billion TARP rescue program. He joins PIMCO as the firm's head of new investment initiatives.

These moves start to answer the question of where PIMCO would gather investing talent as it builds out its equity offerings. The shop says, though, that it's unlikely that any new funds will be introduced before 2010's second quarter.

Tricky Ponies
With a distinctive investment approach, Gudefin and Lahr aren't typical portfolio managers. They, like their colleagues, were afforded a lot of flexibility in managing their Mutual Series funds, including the ability to invest around the globe without geographic constraints. At the heart of the uncommon strategy is a deep-value mindset. Stocks are often evaluated on a sum-of-the-parts basis, and Gudefin and Lahr insist on serious discounts to their assessments of intrinsic value.

They also engage in merger-arbitrage situations, typically buying the targets of announced acquisitions. And they have participated in distressed-debt scenarios; that is, they buy the bonds of firms that are going through bankruptcy or, sometimes, that look to be headed in that direction.

They have other tricks up their sleeves. For example, the two funds that Gudefin comanaged (one with Lahr) went much heavier into cash in 2008 than Mutual Series' other offerings and than the vast majority of mutual funds out there, and Lahr introduced the idea of index put options in mid-2007 as a way to protect the fund in a general market downturn, just as the financial crisis was beginning to take shape.

PIMCO says that the duo's investment mentality resonates within its own culture. It likes Gudefin's and Lahr's long-term investment horizon, as well as their willingness to invest up and down a firm's capital structure and, at times, take a contrarian view. It's thus likely that Gudefin and Lahr will use the same flexible and creative approach in their new digs.

Gudefin's and Lahr's admirable track records are also attractive. It's been just over four and a half years since Gudefin was named a manager on Mutual Global Discovery; that fund's 36% cumulative gain since mid-May 2005 ranks among the very best in the group of mid-value, large-value, and world-stock funds. Lahr's five-year record on  Mutual Financial Services (TFSIX) isn't quite as strong--that fund is still showing a loss, but one that is smaller than nearly two thirds of its peers'. Given Gudefin's and Lahr's approach and performance history, investors can expect any new PIMCO funds under their guidance to hold up best when times are tough.

But there are challenges. Mutual Series boasts a large analytical team that included merger-arbitrage and distressed-debt specialists; building its handful of portfolios has always been a collaborative effort. According to PIMCO, Gudefin and Lahr will build a small team of analysts, but it may take some time. While Gudefin and Lahr, as portfolio managers, were generalists, their analyst specialties rested in international staples (spirits and tobacco companies, for example) and global financials, respectively.

More Star Power
By contrast, Neel Kashkari isn't joining PIMCO as a money manager, but rather as a point person to build out the firm's nascent global equities business. Gudefin and Lahr are just the first two managers in that business, which is expected to eventually house additional teams focusing on other areas or styles within the equity markets.

Kashkari doesn't appear to have experience specifically relevant to his new role. A spokesperson for PIMCO noted, however, that the firm often likes to hire candidates who it believes have great talent. In particular Kashkari appealed to PIMCO based on his reputation for taking on new roles and then quickly digesting information in order to get up to speed and execute a strategy.

Morningstar director of fixed income research Eric Jacobson contributed to this article.

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