Pimco Positioned to Gain from CDO Woes
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Friday, August 10, 2007

Pimco Positioned to Gain from CDO Woes

Was Bill Gross able to put Pimco in a position to reap a windfall from this week's turbulence in the asset-backed bond market? Clues that Pimco is a beneficiary of the market swings can be found in Allianz's earnings report released Friday. German-based Allianz is the parent to Newport Beach, California-based Pimco. In a statement to stock analysts, bank officials confided that Pimco will make hay -- or alpha -- from the mortgage panic.

"Pimco has pretty early in the process flagged some concerns about developments in the US mortgage market and they feel now well positioned based on their longer-term strategy to generate strong alpha in the months ahead," according to the report.

During the call Helmut Perlet, Allianz' CFO, told a Citigroup analyst during a Friday earnings call Bill Gross was "always out of the market" for subprime mortgages. The answer was in response to Ames Quin's question of whether "Pimco funds had a material proportion of assets in subprime or which had any leveraged positions in CDOs."

"On Pimco, it shouldn't come as a surprise to you if these guys had significant exposure in the subprime business as Bill Gross was always out in the market. And I think there are some concerns. I think maybe the background of your question is the most recent development and announcement of AXA. There is nothing on the table that we are aware of that there is any kind of similar development on the Pimco funds," Perlet responded.

Perlet added that "... the Pimco guys are very confident that ... that they can take benefit of this sole development. They are positioned very conservatively and they see rather opportunities to go forward to generate alpha, because obviously it we do see repricing of credit risk with some people in a need to restructure all their positions, there are all kinds of opportunities out there to buy cheap."

The reference to AXA was presumably in regards to that bank's announcement that it would inject its own funds into two European mutual funds in order to prevent sales of the funds assets on unfavorable terms. The Axa IM Fixed Income Investment Strategies US Libor Plus fund fell 13.45 percent from July 18 to July 19, while the AXA World US Libor Plus fund fell 12.6 percent on that day, according to the French bank.

Dominique Carrel-Billiard, chief executive officer of Axa Investment Management, said that "We are doing this to protect clients interests in exceptional circumstances for these two dynamic money market funds." He added that "It is a temporary problem for the funds and markets. When the market goes back to normal we will go back to normal."

Despite the names of the funds, they were not money market funds, explained Carrel-Billiard during the conference call.

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