The Bond King's New World
Bill Gross and PIMCO face two big challenges:
By William Glasgall
From the May 2004 Issue of Investment Advisor Magazine
In the world of bonds, there is PIMCO, and there is everyone else. Once a boutique fixed-income shop, opened 33 years ago in the placid Los Angeles suburb of Newport Beach by Bill Gross, an often acerbic Vietnam vet who financed his MBA with his Las Vegas blackjack winnings, PIMCO has grown in tandem with the incredible 23-year-long bull market in bonds. Purchased for $3.3 billion in 2000 by Germany's largest life insurer, Allianz, PIMCO—short for Pacific Investment Management Company—manages nearly $400 billion, including PIMCO Total Return, whose $75 billion in assets make it the largest bond mutual fund on earth. "PIMCO is," says Joachim Faber, CEO of Allianz Dresdner Asset Management, "the authority in bonds."PIMCO’s luxurious headquarters, offering expansive views of the Pacific Ocean and the occasional glimpse of Gross peering across the trading floor from his glass-enclosed office, reinforce this feeling of self-assurance. But while PIMCO’s success has its rewards, it would be a mistake to conclude that the firm is resting on its laurels. Indeed, it is now trying to get its arms around a series of challenges that could shake the firm’s very foundations.
The challenges are twofold. One comes from securities regulators. The second comes from the bond market itself. Either would be sufficient to give most bond traders more than a few sleepless nights.
The immediate regulatory challenge comes from state and federal
regulators. PIMCO acknowledges that the Securities & Exchange Commission is
considering taking action against two affiliated companies, PIMCO Advisors
Fund Management and PEA Capital (Allianz Dresdner's New York-based equity
fund management unit), as part of its broad investigation of market timing
practices in the mutual fund industry. In addition, New Jersey Attorney
General Peter C. Harvey in February filed state fraud charges against
