Remuneration datapoint of the day, Pimco edition
Jenn Ablan and Matt Goldstein report on the mind-boggling amounts of money being made at Pimco (Note, as per the update below, that Pimco says that the numbers here are “wildly inaccurate”):
The aggressive culture has minted millionaire traders and portfolio managers. The top 30 partners have pulled down an average $33 million a year in compensation in recent years, say people familiar with the firm.
Never mind the $2.2 billion net worth of Bill Gross, the founder of the company; nowadays, people like Neel Kashkari can come in and immediately start making millions of dollars a month. Kashkari, remember, is still in his 30s: had he stayed at Goldman Sachs, he’d be doing fine for himself but making nothing remotely approaching this kind of money. Taking a pay cut to follow Hank Paulson to Treasury turns out to have been arguably the most lucrative decision of his life.
Indeed, it might be true to say that no one on the sell side of Wall Street — no one who works for a bank — is making the kind of money that the average Pimco partner is pulling down. There are 53 of them altogether — they’re called managing directors, now — and the amount of wealth they’re accumulating is simply astonishing. It also helps explain why so many long-time Pimco fund managers leave to set up their own companies: they’ve already become dynastically wealthy, and they have more than enough capital to found their own shop, where they can keep everything for themselves.
And when you get to Pimco’s size, the amount of money rolling in is so enormous that it’s easy to see how you can get to these kind of sums. Pimco has some $1.4 trillion in assets under management, and won’t tell anybody how much it charges to manage that money. If a big sovereign wealth fund is handing over tens of billions of dollars to manage, you can be sure they’re driving a hard bargain in terms of fees. On the other hand, look at the public fees for Pimco’s flagship Total Return Fund: the total expense ratio ranges from 0.9% to 1.65%, with customers having to pay an up-front 3.75% sales load to get that lowest fee.
And we know that in 2010, New York City paid Pimco $15.3 million in fees on an investment of $220 million, split between a $1.3 million management fee and a $14 million incentive fee. That’s a total fee of 7% of assets.
Pimco’s been expanding quite aggressively into areas like hedge funds and equities where it gets to charge much more than the fees it normally charges for its bond funds. But let’s be conservative, and say that overall it pulls in 1% of assets every year. That would give Pimco annual revenues of $14 billion. (As per Update 2 below, this number doesn’t square with Allianz’s asset-management revenues.) Let’s say that 60% of that goes to Pimco’s owner, Allianz, as profits on its investment. That leaves $5.6 billion to pay for overhead and salaries.
Pimco’s small, in terms of employees: it has maybe 2,000 altogether. Let’s say that it costs an average of $100,000 per employee to give them nice offices and benefits and the like. And let’s say they all get $100,000 a year just for being Pimco employees. Then that’s $400 million a year to cover overhead and support staff. That still leaves $5.2 billion or so to pay the 750-odd investment professionals in the firm — which works out to an average of roughly $7 million each.
Or, to put it another way, if you’re an investment professional at Pimco and you’re not making seven figures after tax, you’re probably way down the totem pole.
We know one datapoint for sure, thanks to documents that Pimco had to file at Companies House in London: the firm’s highest-paid director in the UK — almost certainly Joseph McDevitt — got paid £25.6 million in 2010. That’s $40 million.
All of which means that if you’re upset about the monster pay packages at the big banks, you’re looking in the wrong place: the buy-side is paying the kind of salaries the sell-side can barely even dream of.
As for the amount that Pimco’s paying Alan Greenspan to be an adviser to the firm, or the amount that CEO Mohamed El-Erian is pulling down, I hazard to even guess. But I suspect he earned more today than I’m going to make all year.
Update: A Pimco spokesman emails:
“The numbers cited in your blog post today are wildly inaccurate.”
Update 2: In the wake of the Pimco statement and other feedback, I’m taking a second look at the numbers. Specifically, Allianz said in its 2010 annual report that total 2010 revenues in its asset-management arm — which includes Pimco — were €4.986 billion, or about $6.6 billion. They probably went up in 2011, but that also includes various non-Pimco asset managers, so it’s probably reasonable to consider $6 billion an upper bound for Pimco’s revenues.
The two numbers we can be pretty sure of, in this post, are the $1.4 trillion in total AUM, and the $40 million paid to one London-based partner in 2010. (Who may or may not be Joseph McDevitt.) Everything else is speculative, and some of it is surely wrong, although Jenn stands by her reporting.