El-Erian to Head Pimco Push into Alternative Investments

A bit more information on the

El-Erian front this morning, with Pimco’s Bill Gross talking

to the Wall Street Journal. The big news is that Pimco seems to be interested

in getting into the alternative investments:

In his newly created role, Mr. El-Erian will help expand the firm’s product

line and increase the role of alternative investments such as hedge funds,

according to Mr. Gross.

This is a massive development for Pimco, which could quite conceivably become

the largest player in the world in the fund-of-funds space. Funds of hedge funds

have historically suffered from the problem that picking a single fund-of-funds

manager is no easier than picking a single hedge fund manager. But if Mohamed

El-Erian is picking funds, and he’s backed up with all the institutional capabilities

of Pimco, then he almost automatically gets onto the shortlist of any potential


There’s also some new information on El-Erian’s remuneration:

Pimco declined to specify Mr. El-Erian’s pay package, though Mr. Gross said

it would be on par with the compensation he enjoyed during his initial time


Mr. Gross said that Mr. El-Erian’s experience at Harvard, where he was president

and CEO of Harvard Management, "filled in his resume" in a way that

made the new position at Pimco possible.

I don’t really understand this. El-Erian was first and foremost a fund manager

when he was at Pimco; he had very little in the way of the kind of operational

responsibility that he had as CEO of Harvard Management Corporation. That experience

has now qualified him for the co-CEO job. What’s more, his stellar returns in

the non-fixed-income space have qualified him to lead Pimco’s push into that

market, and have served as a proof-of-concept that bond-fund managers can successfully

invest in other asset classes as well.

In other words, El-Erian is now vastly more valuable to Pimco than he was when

he left, and has a much more important job title. So I’m not entirely convinced

that his pay package won’t have gone up substantially. Maybe it’s just very

back-loaded with a percentage of alternative funds under management if and when

they arrive.

El-Erian didn’t talk to the WSJ, but he did apparently talk to Latin Finance,

which reports in its daily email that he told them he made the move "to

rejoin my personal and professional families." Is that a hint that he felt

more at home at Pimco than he does at Harvard?

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