Pimco’s McCulley to Return for New Role as Chief Economist

May 27, 2014 2:16 pm ET

(Updates with Bill Gross comments in fourth paragraph.)

May 27 (Bloomberg) -- Pacific Investment Management Co., the fixed-income manager that overhauled its leadership this year after the abrupt resignation of former Chief Executive Officer Mohamed El-Erian, said Paul McCulley will return to the firm in the newly created position of chief economist.

McCulley, 57, started today reporting to Chief Investment Officer Bill Gross, according to the Newport Beach, California- based firm. McCulley, who was previously head of Pimco’s short- term desk and left in 2010, will be a member of its investment committee, and won’t manage any money in his new role.

Pimco is bolstering its team after naming six deputy CIOs in the biggest leadership shakeup in its history in January, after El-Erian announced his decision to leave the firm. Pimco, which oversees $1.9 trillion in assets, outlined its “new neutral” thesis this month, updating its outlook five years after El-Erian and Gross popularized the “new normal” concept to describe a period of below-average economic growth following the financial crisis. Pimco’s latest forecast is characterized by interest rates stuck below pre-crisis levels.

“We needed the strengthening of our top-down secular macro orientation, and that’s what Paul brings to us,” Gross, 70, said in a telephone interview, adding that he and McCulley started talking a few months ago. “This to us is a not only exciting moment but an important one in terms of solidifying Pimco’s critical foundation,” he said.

Third Stint

This is McCulley’s third stint at Pimco, which was co- founded in 1971 by Gross. Best known for his analysis and monthly commentaries on central banks and monetary policy, McCulley first joined Pimco in 1990 as an account manager. He left two years later for UBS Warburg, a unit of Zurich-based UBS AG, where he served as chief economist for the Americas. He returned to Pimco in 1999 as a portfolio manager and left in 2010 after 27 years in money management to join a think tank.

“The departure of a big think economist, Mohamed El-Erian, warrants bringing in another big think economist,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “And no better than McCulley who is well respected both in the street and within Pimco” and its parent Allianz SE.

‘Natural Evolution’

Pimco’s new outlook for the next three to five years, which Executive Vice President Richard Clarida called a “natural evolution” from the new normal, forecasts global growth converging toward lower, more stable speeds and interest rates that are below their equilibrium reached prior to the 2008 global financial crisis.

“There is zero, absolutely zero, daylight between me and Pimco on the new neutral,” McCulley said in a telephone interview. “In fact there’s the antithesis of daylight: same church, same pew, same hymnal.”

He’ll be a “public person,” he said, with media appearances that will be “somewhere between ubiquitous and regular.” He will also write monthly commentaries and speak at conferences, he said.

Alongside Gross, 55-year-old El-Erian had been the public face of the firm, and his resignation triggered reports of management disagreements. He serves as chief economic adviser to Pimco’s parent company Allianz, and writes a daily column for Bloomberg View, the opinion section of Bloomberg News.

‘Grown-Ups’

McCulley will lead some investment committee meetings, where the team will debate macroeconomic topics, he said. Leadership at the meetings will rotate between him, Gross, and the new deputy CIOs. Gross will sometimes sit at the side of the table instead of at the head to be a “vigorous participant,” he said.

“We’re all grown-ups, we all know each other, we all respect each other,” McCulley said. “I’m looking forward to seeing Bill as a participant, not just as a leader sometimes, because I haven’t actually been in a robust ‘let’s get the right answer’ with him in the investment committee.”

Gross said this month that his $230 billion Pimco Total Return Fund, which has seen record redemptions and lagged behind 74 percent of rivals in the past year, will rank at the top before year-end. The fund has returned 1.4 percent in the past month, to beat 97 percent of its peers, according to data compiled by Bloomberg.