PIMCO, the world’s largest bond manager, announced last week that it would retrench about 3 per cent of its staff globally. Australia has already felt the decision, including the firm’s head of compliance.
PIMCO said last Thursday (AEST) that it had made 68 positions redundant and was proposing to lose a total of about 3 per cent of its estimated 2,300 workforce around the world. In Sydney, two people were let go last week.
The question for the wider funds management industry, especially in Australia, is how indicative is this of a deeper malaise. Investment banks have been shedding staff for the past year or more and the recruitment market has become very loose. Big superfunds are insourcing more of their investments and squeezing down on their external managers’ fees. Times are tough.
PIMCO has suffered an outflow of several hundred billion dollars following the departure of its co-founder Bill Gross and embarrassing lawsuits filed last year. Gross is now at Janus Capital. According to the ‘LA Times’, PIMCO’s FUM has dropped from US$1.9 trillion to US$1.4 trillion since Gross’s departure. The firm is based in Newport Beach, near Los Angeles, and is a big employer in the district.
It should be noted, fixed interest strategies have not been very popular generally in the past couple of years. And PIMCO is not the only manager which has been feeling the stress.
Many of the layoffs, announced in a message from three executives, will come from a group focused on dividend-paying stocks. The firm will close six stock funds later this summer.
The memo to staff said:
“Earlier today the Executive Committee directed a series of steps to ensure that our business is better structured to serve our clients in this fast-changing asset management industry landscape. We want to share this news with you now that we have connected with our colleagues who are affected.
“As a primary step, we have taken the difficult decision to reduce our headcount by 68 people. We have always strived to hire top talent, so those who are now leaving are colleagues who have given tremendously to PIMCO and our clients. We pride ourselves on being a lean organisation with a special culture, so that only makes this decision even more difficult and personal for us as a firm. While this reduction represents just 3 per cent of our workforce, the changes are especially painful given the close bonds that all of us forge with one another as colleagues and friends. We thank all those who are leaving for their many contributions and we will miss them.
“Secondly, we will be offering voluntary severance to eligible employees in the US. Those eligible will be contacted later today by HR. Separation terms will be determined by reference to local custom and regulations.
“Finally, we have decided to restructure our active Dividend strategies by converting the equity exposure to Research Affiliates Equity Income (RAE Income). While our Dividend team colleagues have made important contributions to the firm, we believe this conversion is a better outcome for clients as we seek consistent performance with a lower risk profile, while delivering on the objectives of high current yield and long-term capital appreciation. As a result, the dividend team will be among our colleagues referenced above who are leaving the firm.
“Here is why we are taking these measures: We remain committed to first caring for the assets that clients have entrusted to us. We also see growth potential in a range of areas including alternatives, private credit, solutions, client analytics, and regionally in many parts of the world, not to mention the increasing investor demand for many of our non-traditional strategies. We know that the role of active management has never been more important to client portfolios. The competitive demands of this industry require that we continually adapt and innovate to meet evolving client needs. Therefore, everything we do is focused on providing investment performance, innovative solutions for clients and outstanding client service.
“Of note, as we collectively move forward as a firm, we will continue to build out teams and hire the best talent globally and manage our staff levels through attrition, hiring, repositioning of resources and through promotion and compensation. We have undertaken an extensive benchmarking exercise this year to compare our compensation with competitors and will use this to remain a top payer in our industry.
“Taking these actions today positions all of us for the future. We will use our substantial resources to invest in you and add to our already remarkable talent where necessary.
“Today is a difficult day for all of us at PIMCO, but most importantly, for those affected by these decisions. The firm is providing support to those affected and we thank them again for their contributions…”
The memo was signed by chief executive Doug Hodge and managing directors Jay Jacobs and Dan Ivascyn.
* Greg Bright is publisher of Investor Strategy News (Australia)