February 7, 2012
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The following interview with Neel Kashkari, Charles Lahr and Anne Gudefin of PIMCO appeared in the January 31, 2012 issue of Value Investor Insight, a monthly newsletter for investment professionals that spotlights through in-depth interviews the strategies and current ideas of the most-successful investors in the business – which in past issues have included Seth Klarman, Bill Ackman, Mason Hawkins, Jeremy Grantham, Marty Whitman and many, many others. To receive the entire January 31 issue and one other as part of a no-obligation free trial subscription, please visit http://www.valueinvestorinsight.com/freetrial.
Bond titan PIMCO has been methodically building its equity-investing expertise. Here the architect of that effort and his first major hires describe their strategy and where it’s uncovering value in today’s market.
Known for its global prowess as a fixed-income investor, giant money manager PIMCO decided three years ago to build an active equity management business from scratch. To head the effort it hired former Goldman Sachs investment banker Neel Kashkari, who also ran the U.S. Treasury's Troubled Assets Relief Program (TARP). The firm next lured Anne Gudefin and Charles Lahr from FranklinTempleton's highly successful Mutual Global Discovery Fund to create a deep-value equity strategy for PIMCO, which has thus far attracted more than $3.5 billion in assets. We spoke recently with Kashkari, Gudefin and Lahr about the strategy behind the firm's foray into equities, how they’re executing it, and where they are – and aren't – finding opportunity in today's market.
Why after all these years did PIMCO decide it wanted to be an active-equity money manager?
Neel Kashkari: There were three main reasons. The first was that coming out of the financial crisis, it became clear to us and to our clients that traditional narrow-style-box investing wasn’t enough, and that in order for us to be a full solutions provider to our clients we couldn’t just be in fixed income alone. Number two, we believed there were certain active strategies using bottom-up research as a base that could perform even better when combined with the global economic, currency, hedging and cash management expertise that already existed at PIMCO. Finally, post-crisis we were in a strong position to recruit the best equity talent in the industry, and if we were careful about ensuring a cultural fit, they would bring additional expertise to the firm’s overall investment process. One pleasant surprise has been how easy it’s been to get the best talent on the phone to talk about the opportunity to work here.
You decided to grow organically rather than by acquisition. Why?
NK: We thought that was the best way to maintain quality and to protect PIMCO’s very strong investment culture. There’s an acute focus on performance, a deep intellectual curiosity for investing and a collaborative team-based orientation. Making a large acquisition could make us big in equities overnight, but along with all the people who fit perfectly into the culture would be a lot of people who didn’t. We’d rather cherry-pick the right ones and build from there.
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