PIMCO - Preaching What We Practice

Last Friday, the Chief Investment Officer and a founder of PIMCO, Bill Gross, unexpectedly resigned and joined a rival mutual fund company. The story made headlines, and not only in the financial press (ABC news had a feature on his departure). It was a big story because PIMCO is the largest manager of fixed income assets in the world, and PIMCO’s marketing efforts often highlighted Mr. Gross’s insights as a reason to invest. We currently use various PIMCO funds in our portfolio recommendations – in particular their flagship Total Return Fund that he managed. Our Investment Committee has analyzed the situation and the management team – relying on our relationship with many PIMCO personnel. We’ve had senior representatives (including a member of their investment committee) in our office twice in the past four months, and participated in their conference call regarding the changes this morning. It’s our unanimous opinion that our clients should remain invested in the PIMCO funds they currently hold. Our reasons are:

• While Mr. Gross was a thought leader at PIMCO, he’s far from the only decision maker behind the funds he managed. All of the strategy decisions were made via committee, and most of the individual trading decisions were made by other personnel.

• We’ve always been impressed with the depth and breadth of their investment management team. As of the writing of this, no other senior investment manager is leaving to follow Mr. Gross. While we’ve always respected his insight, our

recommendation for PIMCO’s funds was based on their broad process and team.

• We don’t think that short-term redemptions by investors who don’t share our belief will be highly disruptive. Their flagship fund is very liquid and can withstand a large amount of withdrawals without having to alter its strategy. We feel that the disruptions to an investor’s portfolio caused by selling PIMCO funds at this time will be greater than the disruptions of holding them.

• We had already broadly diversified our client’s positions into funds other the PIMCO. Hence, the risks of one fund are relatively minor in the context of the overall portfolio

We’ll continue to closely monitor the PIMCO funds we’re recommending to clients, and won’t hesitate to revise our position if new information warrants such a change. However, for now, we’re recommending no change. At the end of our Investment Commitment meeting, we asked ourselves a basic question. As a group, we have sizable positions invested in PIMCO funds, and we considered what we will do with our own positions. The unanimous answer was not to sell. We can’t think of any more prudent investment advice than to preach what we practice.

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