Kashkari Departure Adds to Pimco’s Equity Unit HurdlesAlexis Leondis
Pacific Investment Management Co.’s loss of Neel Kashkari as head of global equities adds to the difficulties the bond manager faces in its push into stocks, a business with less than 1 percent of the firm’s assets.
Kashkari, who joined the firm in 2009 after acting as senior adviser to former U.S. Treasury Secretary Henry Paulson, said in an e-mail yesterday he’s leaving Newport Beach, California-based Pimco to consider returning to public service.
Pimco, manager of the world’s biggest fixed-income fund, has been seeking to reduce its dependence on that market and adding stock funds as it anticipates an end to the three-decade bond rally that fueled its growth. Pimco, which oversees $1.9 trillion in assets, has attracted about $10 billion to the equity unit since the first fund was opened in April 2010. Three of the firm’s four main stock funds trailed a majority of rivals in 2012, according to data compiled by Bloomberg.
“It is certainly a loss for Pimco,” Russel Kinnel, director of mutual-fund research at Chicago-based Morningstar Inc., said in a telephone interview. “He was an important leader who did a good job in bringing in some talented people.”
Dan Tarman, a spokesman for Pimco, declined to comment on Kashkari’s departure. Under Kashkari, who was hired in December 2009 to help oversee the expansion into equities, managers such as Masha Gordon from Goldman Sachs Group Inc. and Geoffrey Johnson from Catamount Capital Management LLC joined Pimco. The firm has added smart stock pickers who benefit from Pimco’s resources and are compatible with its view of a larger global role for developing nations, Kashkari said in July.
Pimco’s first equity fund was the $2.2 billion EqS Pathfinder Fund, followed by the $600 million EqS Emerging Markets Fund in March 2011. Pathfinder, the firm’s largest stock fund, returned 9.5 percent last year, trailing 91 percent of peers, according to data compiled by Bloomberg. The emerging-markets fund, the second-biggest, returned 13 percent, behind 88 percent of peers. Pimco wants to deliver strong equity performance over three to five years, Kashkari said in the July interview.
U.S. stock mutual funds attracted money for two consecutive weeks at the start of 2013, hinting at a turnaround after six years of redemptions. Investors put $5 billion into domestic stock funds and $4.3 billion into funds that invest in international equities in the week ended Jan. 16, the Washington-based Investment Company Institute said yesterday. Domestic and international stock mutual funds combined received $14.3 billion in deposits in the previous week, the most since at least 2007.
“It is a blow to Pimco,” Geoff Bobroff, a mutual-fund consultant based in East Greenwich, Rhode Island, said in a telephone interview of Kashkari’s departure. “Bonds aren’t going to return what they have over the past 10 years. To the extent you are going to attract investors it is going to be more difficult unless you have an equity capability.”
Kashkari, 39, directed recipients of yesterday’s e-mail to his personal website, which said he’s reaching out to leaders in communities across California to hear their ideas, share his own and explore how to best bring positive change in the state.
California Governor Jerry Brown, 74, hasn’t said whether he plans to seek re-election in 2014. State Treasurer Bill Lockyer must leave office at that time because of term limits. California sells more debt than any other state. The California controller’s office, held by John Chiang, is also open in the 2014 election cycle because of term limits. All three office holders are Democrats.
Kashkari, a former investment banker at Goldman Sachs, was picked by then-Treasury Secretary Paulson in 2008 to oversee the $700 billion Troubled Asset Relief Program, created to help financial institutions emerge from crisis in the wake of the subprime mortgage collapse. He resigned from that role in 2009.
“Leaving is not an easy decision because our equity business is off to a great start,” Kashkari said in his e-mail sent to friends yesterday. “Nonetheless, my passion lies in public service.”