More Conflict At Pimco Surrounding El-Erian Departure

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There was more acrimony at the top of Pimco than was previously known, according to one report.

Top exec close to El-Erian left after becoming “disillusioned” with Gross

Just hours before Mohamed El-Erian announced his departure from the firm, he was likely to eventually lead, Marc Seidner, then head of Pimco’s equity business, resigned after becoming “disillusioned,” according to a report in the Financial Times.

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For 18 months preceding his departure, Seider found the behavior of Pimco’s founder and CEO Bill Gross  “increasingly illogical and irrational,” according to the report.  Seider was close to El-Erian, having moved to Pimco from the Harvard University endowment fund where he was a portfolio manager when El-Erian, then CEO of the fund, moved to Pimco.

ValueWalk previously reported tension over investment focus following El-Erian departure

El-Erian’s leaving Pimco was a surprise to many, as Gross had publicly named him as his heir apparent to the investment throne of nearly $2 trillion under management.  However, as reported in ValueWalk earlier in the month, that kingdom was said to be in trouble, as assets under management had been sliding in the firm’s bond fund while many market forecasters have been calling for an end to the twenty year bull run in bonds, issues ValueWalk addressed the day El-Erian announced his resignation from the firm.

Disagreement on day of departure

When El-Erian announced his surprise departure in January, many reports painted a rosy picture between Gross and El-Erian. ValueWalk, however, reported potential disagreement the day after his departure.  In that article, we noted “the investment philosophies of Bill Gross and Mohamed El-Erian were a study in contrast.  As Gross lamented the future potential for bond appreciation, he began to dabble in aggressive alternative strategies,” which El-Erian thought represented losing focus.  The FT report notes that “tensions flared over Pimco’s push away from core bonds,” quoting former executives.

Pimco has been struggling to retain assets and the trust of investors due in large part to the management reshuffling and controversy left in the wake of the high profile departures.  Morningstar had downgraded one Pimco’s rating just two day ago.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com