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Friday, March 21, 2014

Is Doug Hodge the Best Grownup for Pimco?

News summary by MFWire's editors

Alright already, we get it. Pimco's Bill Gross is eccentric and grumpy and former CEO Mohamed El-Erian couldn't make him behave.

What do we know about the new chief executive, Doug Hodge?

He remains a bit of a cypher, even after you read his Pimco bio and the recent Financial Times profile.

Well, we know from both sources that he is smart, having attended Dartmouth and Harvard; is good at math and logical because he first sold computers, and likes earning money because he worked as a fixed income trader at Salomon Brothers.

He then has 25-years under his belt as a Pimco veteran, notably in non-PM roles.

If I were an executive at the 30-plus bond giants competing with Pimco, I'd pay attention to the seven years he spent as head of Pimco's Asia Pacific business in Tokyo.

What clues would you look for? Well, for starters, is he the right kind of grownup for Pimco?

If anything about ongoing media accounts about the firm's "Gross solipsistic eccentricity," (as one loyal FT reader commented) show, it's that the firm was run much like the classic investment shops of yore.

In this cult of the PM, you have a firm that is focused on performance, and is run much like a boutique with a handful of whip-smart, garrulous investing jocks. One person is able to handle the few dozens of institutional relationships by phone.

But, as everyone, again, can see, selling by performance makes a firm vulnerable to the usual vicious downward cycle when returns disappear.

Yes, of course, you need returns, no question. But that's just the cover charge to get into this crazy investing club.

If a firm is going to be sustainable for years to come, if a firm is going to have any reliable presence in retail (must I remind the reader that the DB and institutional channels are saturated and slowly shrinking), then a firm needs to grok marketing.

A firm needs to sell by message, not just returns. The firm needs a brand and a viable rationale that advisors can communicate to their clients.

To do that, a firm needs to be run like a business, with a distinct organization that exists beyond the product.

And to do any of that, Pimco needs to be run by the right kind of grownup. Someone who can decide what the business is about and handle all the prickly egos, random conga lines notwithstanding.

According to a recent Financial Times, it seems like there have been more tensions at the top besides just with El-Erian. In particular, fund manager Marc Sneider quit the day he was to be announced as a deputy CIO at the company.

Further, Pimco's need to assert its value proposition is becoming more critical. For example, TCW recently took over a $1.3 billion subadvior mandate from Pimco for a Columbia fund.

In other words, Pimco needs an adult, or rather a business person, to make grownup business decisions now.

Is Doug Hodge the right grownup to do it? 

Edited by: Tommy Fernandez

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