Burying Bonds

Fallen Bond King Pimco Pins Future on Alien Equity Market

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Virginie Maisonneuve has been in charge of the equities division since 2014.
  • Why it matters

    Why it matters

    At stake is the future of Pimco, which has recently seen investors fleeing its bond portfolios and is hoping to carve out a slice of the equity market to survive.

  • Facts

    Facts

    • Virginie Maisonneuve came to Pimco at the start of the year from the British investment firm Schroders, where she was head of global equities.
    • At Pimco, she manages an equities division with €40 billion in assets, a relatively small share of the company’s €1.4 trillion in total assets under management.
    • Pimco has suffered investor outflows of more than €50 billion from its bond funds since the spring of 2013 amid fears that a three-decade rally in the bond market may be coming to an end.
  • Audio

    Audio

  • Pdf

At first glance, Virginie Maisonneuve is a small fish in a big pond. She has been hired to lead the expansion of the small equities division of Allianz-owned Pacific Investment Management Company, known as Pimco. With a €40-billion ($51.8 billion) portfolio, the equities division dwarfs the firm’s €1.4 trillion in total assets under management. Ms. Maisonneuve will be in charge of about €5 billion in individual stock picks out of London.

But Ms. Maisonneuve’s task is much bigger than her division’s numbers suggest. Some would say she holds in her hands the future of the struggling Newport, California-based Pimco, which under founder Bill Gross has for decades been synonymous with trading bonds rather than stocks.

With many anticipating that a three-decade long bond rally might be coming to an end, Pimco is trying desperately to diversify its operations and halt the flight of investors from its bond portfolios since last spring. The mass departure caused former chief executive Mohamed El-Erian to quit the firm at the start of the year, allegedly after an argument with Bill Gross. Ms. Maisonneuve is charged with turning around a four-year-old equities operation that has struggled to get off the ground.

In an interview with Handelsblatt, the Pimco executive talks about having a top investor as her boss, the greatest risks for equities and her personal recipe for success in investment. Ms. Maisonneuve is resolute about her plans. A mother of two, and the lone woman on Bill Gross’s six-person board, she is not promising quick results.

Handelsblatt: Ms. Maisonneuve, why did you move from the British investment firm Schroders to Pimco at the beginning of the year, even though you were in a good position as head of global equities at Schroders?

Virginie Maisonneuve: I sought a corporate challenge. Although Pimco is very large, the equities division is still very small. It makes up only €40 billion ($51.8 billion) of a total of €1.4 trillion in assets under management. That attracted me.

You arrived at a time when the former chief executive, Mohamed El-Erian, had had a falling out with his co-chief investment officer, Bill Gross.

I arrived exactly one day before Mr. El-Erian left.

014 Allianz

Would your decision have been different if you had known that?

No. I wasn’t interested in Pimco because of one person. I wanted to work for the company and assume this task. I just spoke to you about a corporate adventure. Pimco is very big, when you look at its managed assets, and yet it has retained its entrepreneurial spirit and strong investment culture. I want to expand the equities division and am responsible for about €5 billion, which is invested in strategies that are based on picking individual stocks. The difference between this and the €40 billion in the total equities portfolio is stock-index investments, which, along with bond additions, are intended to achieve an attractive return.

Across which major equity strategies are the €5 billion distributed?

We have four strategies. In addition to dividends and emerging-market strategies, we are focusing on flexible approaches that can take advantage of rising and falling stock prices, as well as on a value concept that invests in competitively-priced securities that will retain value.

Do you expect the equities division to grow quickly or slowly? Opinions on this have differed in the past at Pimco.

It has to be at the right pace. Earnings performance and the right products are critical. We have to deliver a good performance. If we do that, investors will entrust us with their money. On the whole, this is a long-term task for the next 10 years, in which we are competing with all other investment firms.

Even with your sister company, Allianz Global Investors?

Yes, of course.

This is a long-term task for the next 10 years, in which we are competing with all other investment firms.

And how does your performance look so far?

Looking at the last 12 months, we are delivering on our mixed stock-bond strategy and our value strategy very effectively on the whole. In terms of the deep value-driven approach, we are behind on our three-year outlook, since our focus on hedging capital has naturally been weaker in a bullish stock market. However, it is looking very good this year. We have seen strong value development in our flexible equities concept for rising and falling prices. We still need to improve when it comes to emerging markets, and we’re working on that.

What other plans will you pursue?

We want to offer a strategy for growth stocks, and we’ve just hired people for that purpose. We also need regional funds, such as an Asia portfolio. I’m also interested in taking a global issue approach in the equities division as a supplement to our existing strategies.

What will those global issues be?

In our Pimco worldview, we have to adapt to continued high levels of debt, low inflation and little growth. Real returns for bonds and bank deposits will remain low. In this environment, dividend strategies that are focused on current income are likely to develop well, along with stability-based strategies for undervalued securities and growth stocks. We can profit from sudden market distortions in places where we are betting on rising and falling prices. In the long term, we are also searching for segments that will benefit from four developments: demographic change, climate change, the rise of emerging economies and technological revolutions.

Pimco-Bill Gross-Reuters
Bond king and Pimco founder Bill Gross has been under pressure amid a flight of investors. Source: Reuters

 

You’ll need more employees for that. After all the wrangling at the top, are things still working as well as they used to?

A lot of people would like to work at Pimco. The company has a strong brand name and many smart people work here. Several hundred people have contacted me directly or through recruiters about the expansion of our team of portfolio managers for growth securities. The efforts of someone like Bill Gross also need to be appreciated. Since Pimco was founded in 1971, he has taken it from a company with a few billion dollars in customer funds to one with about $2 trillion in assets under management.

Mr. Gross is considered egocentric. How do get along with him when you encounter each other in the investment committee?

Very well.

The funds that investors are pumping into your equity products certainly can’t offset the high outflows from your bond products, especially from the world’s largest bond fund, which has seen outflows equivalent to more than €50 billion in managed assets since the spring of last year.

We don’t think in those terms. Our goal is to offer good stock solutions. If you look at the dimensions, it becomes clear that with our equities business, we are still years away from making a significant contribution to the total assets under management.

For investors who accept the larger fluctuations in equities, stocks will likely generate higher returns than classic government bonds over the next three to five years.

Mr. Gross is the bond star, and you’re the new head of equities. Will stocks be a better investment than bonds in the coming years?

First of all, we are of course not competitors. All investment experts at Pimco endeavor to provide good service to their customers, whether they are equity or bond managers. But to answer your question: both stocks and bonds can make a significant contribution in the environment that we anticipate. For investors who accept the larger fluctuations in equities, stocks will likely generate higher returns than classic government bonds over the next three to five years. But I don’t make index predictions.

What do you think the biggest risks are in this pro-equities scenario?

There are three. First, there is the fact that booming financial markets and the ailing real economy are drifting apart. And then there are different paces in the global economy and, as a result, in monetary policy. The United States and Great Britain would like to tighten the reins, while Europe, China and Japan are pursuing a policy of monetary easing. Aging societies in a world of little economic dynamism are also a threat.

How do you invest your private funds?

In real estate, stocks, cash reserves and unlisted companies. The high percentage that I invest in stocks is distributed across growth securities and emerging markets. I also own a few individual securities, some of which I’ve had for two decades, such as Chinese stocks.

Ingo Narat conducted the interview. Christopher Cermak contributed to this story. To contact the author: narat@handelsblatt.com

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