Dear Friends, Colleagues and
Co-workers,
For the past 43 years, Pacific
Investment Management Co. has been my home, as well as my pride and
joy. With great sadness, I must bid her
adieu, not because I want to leave, but because I must. It is the natural order
of things for all seasons to change; for the next generation must be given its
chance. A new epoch is upon us. Ashes to ashes . . . .All those reasons -- plus truth be told, an imminent palace coup -- meant it was time for me to go.
Before I depart, however, I offer you
this final Investment Outlook, my last IO for you to consider.
No cats, no "Man in the Mirror," just a few thoughts for you to
reflect upon as the next era -- a newer new normal --
begins.
I
co-founded PIMCO in 1971, starting with a mere $12 million in
assets. Who could have imagined what the company would become during the
ensuing 43 years? After four decades as founder, fund manager and mostly as CIO,
I guided this firm to managing more than $1.97 trillion in client
assets. When I sold the 70 percent stake not held by Pacific Life Insurance
Co. to Allianz SE in 2000, the company had a value of $4.7
billion.
Not too shabby a track record. I
daresay I must have gotten one or two things right during that
period.
Not that you would know it by the
recent press coverage, nor by the whispers in the hallways of Pimco. The immense
wealth I helped to create for my colleagues, partners and clients over all that
time meant nothing, once Machiavelli’s stratagems were put into
play.There is a standard sequence of events for all insurrections, and this one was no different. It included the favored tactics: A public character assassination, the quiet intimations that I had lost it (erratic behavior, dark glasses at a presentation, an elegy to my cat Bob). Add to that a break with a trusted associate, which implied something nefarious about that behavior (How did Mohamed manage to resign from Pimco, yet stay employed at Allianz? I couldn't pull that one off).
These hints and allegations were easy
to make, especially given my natural eccentricities. But I put this question to
you: Was I so different from any
other California billionaire? The TM and yoga, the occasional head
stand, a well-deserved bark at a wayward underling -- these and all manner of
behavior that no one ever thought about before suddenly took on all sorts of
dark implications once the coup was under way. Never underestimate the impact of a whisper
campaign.
On ne voit bien qu'avec le cœur.
L'essentiel est invisible pour les yeux. Translation: "One sees clearly only
with the heart. What is essential is invisible to the
eye."
I must point out that these
idiosyncrasies have been on display for decades, and were never looked on
askance. At least, not while the alpha was piling up and the assets under
management were rolling in.
But alas, that chapter has come to an
end; it is now time to look forward. The future of Pimco is now in your hands, a
dozen or so managing directors. You represent the future of the firm. You are
the new BSDs, and to you I put the following
questions:• Some Pimco funds are generating what I call “perceived” alpha. This seems to be nothing more than “leverage-enhanced” beta. Discuss.
• I cautioned against the wholesale expansion into equities, as fixed income was the asset class upon which the firm made its bones, built its reputation and acquired almost all of its AUM.
How is that equity thing going? And whatever happened to thatKashkari kid? Seemed like a nice fellow.
• Many of you seemed to resent my annual compensation (Mohamed's too). I suspect you believed that a few hundred million dollars would be better placed in your collective hands.
Query: Is splitting up the big dogs’ comp among yourselves worth the fallout of a smaller asset base in the years to come? Is that in the best interests of the firm?
• Speaking of assets: Who among you is going to be the firm’s rainmaker? Which of you can raise a trillion dollars? How about a $100 billion? How will you compensate the people who raise that money? Best of luck managing the resentment for whatever compensation system you arrange.
• Many of you are in your 30s, 40s and 50s. How long do you plan to work here, and how much are you willing to sacrifice? I was married to this place, and gave it my all.
What are you prepared to give?
• Now that you have your new-found authority, what are your plans for it?
As for me, I am off to my newer new normal. There will always be a special place in my heart for Pimco. I wish all of you all of the luck in the world, as I leave you in charge of her. She’s your baby now. Try not to screw it up too badly.
William H.
Gross
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