Pimco Hires Contrarian’s Schwartz to Manage Distressed Debt

Aug 05, 2014 10:57 am ET

(Adds firm’s alternative offerings in fourth paragraph.)

Aug. 5 (Bloomberg) -- Pacific Investment Management Co., the firm that oversees $1.97 trillion including the world’s biggest bond fund, hired Ethan Schwartz as a money manager focusing on distressed credit.

Schwartz, formerly a senior analyst at distressed-debt investor Contrarian Capital Management LLC, started this week and is based in New York, according to a statement today from Newport Beach, California-based Pimco. He reports to Sai Devabhaktuni, Pimco’s head of corporate distressed portfolio management.

“Pimco has strong capabilities in distressed debt and opportunistic credit investing,” Devabhaktuni said in the statement. “Ethan’s hiring is another example of the firm’s continued focus on further enhancing our investment platform outside of traditional markets.”

Pimco is broadening its offerings and expanding non- traditional bond funds as clients seek ways to protect themselves from rising interest rates. Co-founder Bill Gross, who became sole chief investment officer in January when the surprise resignation of co-CIO Mohamed El-Erian sparked the biggest management overhaul in the firm’s history, has said Pimco is committed to shifting from a U.S.-oriented bond firm to a diversified asset manager.

Schwartz helped manage about $2.7 billion in hedge-fund assets at Contrarian, according to the statement. Before becoming an investor, Schwartz wrote for the Washington Post and the New York Times.

Bravo, DiSCO

Pimco gathered $5.5 billion this year for its second fund focused on distressed assets from U.S. and European banks, a person familiar with the matter said in March. Bravo II Fund, short for Bank Recapitalization and Value Opportunities, focuses on residential and commercial real-estate assets. Its predecessor Bravo I amassed $2.35 billion, people familiar with the matter said in October.

Pimco started its Distressed Senior Credit Opportunities Fund, dubbed DiSCO, in 2008 to invest in mortgage-backed securities ranked high in the capital structure, people familiar said at the time.

For at least the past five years, the unit of Munich-based insurer Allianz SE has added alternative funds, exchange-traded funds and equity products as it pushes beyond U.S. bonds.

Gross’s $223 billion Pimco Total Return Fund suffered its 15th straight month of net investor withdrawals in July, with clients pulling $830 million, according to Morningstar Inc. That was the smallest month for the world’s largest bond mutual fund since redemptions began in May 2013.

Dollar-denominated distressed bonds, which typically yield more than 10 percent, have generated about 5.2 percent this year, after returning 12 percent last year, according to Bank of America Merrill Lynch index data. The investments have beaten high-yield debt, which have returned 4.2 percent this year and 7.4 percent in 2013.

--With assistance from Alexis Leondis in Washington.