Oct. 19 (Bloomberg) -- Pacific Investment Management Co., the world’s biggest manager of bonds, is considering starting a stock-fund unit for the first time in its 38-year history as it expands its lineup of products, a person familiar with the firm’s plans said.

Pimco may hire an existing management team with a track record, said the person, who asked not to be identified because details haven’t been made public. The Newport Beach, California- based company hasn’t decided on the candidates it will consider, the person said.

Pimco, which earlier this year opened its first exchange- traded funds, is expanding under Chief Executive Officer Mohamed El-Erian to offer a wider range of investment products. El-Erian has said the U.S. faces a sustained period of lower economic growth than in the past and elevated inflation, a scenario he called the “new normal.”

“Pimco realizes that at some point there will be some migration away from fixed income into equities, and they want to capture some of that,” Geoff Bobroff, a fund-industry consultant in East Greenwich, Rhode Island, said in an interview. “Now may be an ideal time to lift a team, as asset- management firms are challenged and there are opportunities.”

Interest rates near historic lows have meant declining returns for bond investors. Even as a global credit contraction brought Treasury yields to the lowest levels since the 1950s, the market’s average annualized return since 2004 is 5.3 percent, compared with 7.4 percent in the preceding five years and 17 percent from 1982 through 1986 at the start of a generation-long rally in U.S. bonds.

Stock Rally

The Standard & Poor’s 500 Index has surged 62 percent since it reached a 12-year low on March 9, the stock benchmark’s strongest rally since the 1930s. It fell 38 percent last year for the worst performance since 1937. The S&P rose 10.23, or 0.9 percent, to 1097.91 by 4:34 p.m. today.

Pimco is a unit of Munich-based insurer Allianz SE. El- Erian shares the position of chief investment officer with Bill Gross, manager of the $186 billion Pimco Total Return Fund, the world’s biggest mutual fund.

Pimco was co-founded by Gross in 1971 primarily as a fixed- income manager. It was acquired in 1999 by Allianz, which has sold stock funds at various times through other affiliates including Nicholas-Applegate Capital Management and PEA Capital LLC.

‘Evolution’

“We have publicly discussed for some time our intent to expand Pimco’s investment activities into additional asset classes, including equities,” Mark Porterfield, a spokesman for the company, said today in an e-mailed statement. “This is part of Pimco’s multiyear evolution as a provider of global investment solutions for our clients.”

The Total Return fund has advanced at an average annual rate of 6.8 percent over the past five years, beating 98 percent of its rivals, Bloomberg data show.

Adding equities would help Pimco compete with asset- management firms such as BlackRock Inc., whose pending acquisition of Barclays Global Investors will make it the world’s biggest money manager.

Takeovers, Job Cuts

London-based Barclays agreed to sell its money-management unit to BlackRock in a deal valued at $13.5 billion in June, as the global financial crisis forced banks and financial institutions to dispose of their asset-management units to raise capital. Bank of America Corp. last month agreed to sell its Columbia stock and bond funds to Ameriprise Financial Inc. for $1.2 billion.

Firms that haven’t been sold have cut more than 9,000 jobs in the past year to bring costs in line with a drop in revenue caused by market declines. Franklin Resources Inc. fired about 335 workers in March as fiscal second-quarter earnings fell 70 percent. Legg Mason said as recently as April that it will continue to examine costs.

El-Erian has been at Pimco since 2008, when he rejoined the company after a stint as president and CEO of Harvard Management Co., which runs the endowment of the Cambridge, Massachusetts, school, the world’s largest university fund. El-Erian was there from February 2006 to December 2007.

El-Erian first joined Pimco in 1999, and was a senior member of its portfolio management and investment strategy group. He led Pimco’s Emerging Markets Bond Fund to an annualized gain of 19 percent in the five years ending 2005. Earlier, he worked at the International Monetary Fund for 15 years through 1997.

Pimco’s plan was reported earlier today by Pensions & Investments.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

Last Updated: October 19, 2009 16:38 EDT