Comments on: How Pimco works

By: LearnBonds

LearnBonds — Thu, 02 Aug 2012 15:22:07 +0000

I think people focus on the “amount” that Bill Gross gets paid rather than the value that he brings to PIMCO / Allianz or Bill’s opportunity cost (how much he could be making elsewhere). By these measures, I calculate he significantly is underpaid at $200M or less per year. While I made a lot of big assumptions, my back of the napkin math suggests that Bill Gross should be getting paid in range of $700 – $1 billion per year. The math is described in the article:

http://www.learnbonds.com/bill-gross-com pensation/

Also, we have a poll – how much do you think Bill Gross should be paid?

http://www.learnbonds.com/bill-gross-sal ary/

By: MercuryZH

MercuryZH — Wed, 01 Aug 2012 14:27:24 +0000

Well, I’d like to take a stab at addressing the following three non-issues:

-Who cares how much money Bill Gross is paid? Are we on the “social justice” warpath here or are you afraid that Pimco shareholders, whose total return includes Pimco management compensation, can’t assess value on their own?

-Who cares if Harvard’s endowment isn’t being optimally managed? They’re loaded, there are a lot of sophisticated, interested parties involved here….and they’re big boys, they’ll figure it out the hard way or otherwise. Your time would be better spent illustrating how ZIRP is ruining the “endowments” of many ordinary Americans.

-Blackrock got so big through acquisitions, which, by accident or design turned out to be very timely. For better or for worse they are the Citigroup of the asset management business – we’ll see how that works out. And a good chunk of their AUM is via their (acquired) ETF business which happens to be hot stuff at the moment but nonetheless amounts to barely active management and is not apples-to-apples with Pimco’s business.
-Mercury

By: DavidMerkel

DavidMerkel — Wed, 01 Aug 2012 14:17:11 +0000

My thoughts:

http://alephblog.com/2012/08/01/pimco-in -theory-and-practice-part-ii/

Contains data on PIMCO’s current bonus structure and ownership. Facts can be useful.

By: edlepicier

edlepicier — Wed, 01 Aug 2012 00:23:10 +0000

Felix – small point, but important. ETFs may be cheaper than comparable mutual funds, but are almost always more expensive than institutional pooled funds. They do however offer a greater variety of indexes so more flexibility, but the majority of AUM at PIMCO, Blackrock and peers will be institutional in nature.

By: realist50

realist50 — Tue, 31 Jul 2012 21:28:10 +0000

“And frankly it’s really hard to take any post seriously when it’s tagged ‘born last night, clown questions, gmafb, horseshit, STFU’”

That same reasoning is exactly why I can’t stand Matt Taibbi and discount everything that he says, even if he may occasionally make a valid point.

By: absinthe

absinthe — Tue, 31 Jul 2012 18:08:10 +0000

Felix, I found a couple of your points nonresponsive. Do you really think the political risk of his pay being leaked (and how many would be in a position to leak it?) is more relevant to his compensation than the sheer size of AUM and management fees walking through the door? Do you think the macro v. bond strategy distinction is more relevant than the inflows that come in simply from having such a publicly respected leader?

Apart from the edge in those tags, I don’t find this ‘anonymous troll’ substantially more offensive than TED (and he’s far less pretentious).

By: topofeatureAM

topofeatureAM — Tue, 31 Jul 2012 17:55:59 +0000

The Blackrock vs PIMCO diversification is an interesting one. You basically have to ask yourself a series of questions “Active or Passive” “Equities or something else” “Long-only or Alts” and “Buy vs. Build”. Blackrock clearly decided to buy a Passive/Quant business. Pimco is trying to build a long-only active equities business, and they are specifically doing it in a way avoids market sectors that are seeing large migration to passive. Now this might not work, but if you decide you don’t want to be in the passive business (maybe a reasonable choice purely because of fee compression, the economies of scale and almost zero marginal cost of managing incremental assets) you basically have to do a build approach. Buying asset managers is really really hard to do. Even when it works for a while it can then turnaround and completely implode (see Axa/Alliance/Sanford Bernstein.) For the strategy PIMCO has chosen having a publicly traded equity doesn’t help. Actually even if you chose a buy strategy given the small number of public Asset Managers out there you could probably get away with issuing more of the quasi-equity Pimco has now.