Pimco, the investment management company that made its name investing in bonds, has made huge gains in expanding its advisory business on complex investments, with that business now topping $1 trillion in assets, the head of Pimco Advisory told Reuters.
Pimco Advisory, the arm of bond giant Pacific Investment Management Co that found its calling during the global financial crisis with the U.S. Treasury and the Federal Reserve as its first major clients, has both expanded its business with the Fed and won substantial private-sector business, its global head, Richard Weil, said in an interview.
Pimco Advisory — which advises clients on issues such as how to restructure loan portfolios, liquidate holdings and best time those sales, as well as offering structured credit services to both private and public institutions — has gone from advising on $20 billion in assets at most before 2008 to more than $1 trillion in assets this year alone, said Weil.
"That dwarfs by a huge magnitude what we were doing before. I think it is a long-term sustainable business," said Weil, who was named global head of Pimco Advisory when it was established as a separate business last May.
In the wake of the global credit crisis, Weil, in his first extensive interview as Pimco Advisory's global head, said private and public sector entities will find it "hard to maintain the expertise that is required to deal with these very hard situations."
Pimco Advisory's business is now split evenly between the public sector and private industry, he said.
Pimco Advisory has served as the collateral manager for the Federal Reserve's Term Asset-Backed Securities Loan Facility portfolio to revive securitization markets, won business as the adviser for the Fed's Commercial Paper Funding Facility, and become the adviser for the National Credit Union Administration.
Last month Pimco beat out rivals including BlackRock Inc, the world's largest asset manager, to advise the National Association of Insurance Commissioners to help reassess the level of mortgage risks taken by insurance companies in a bid to improve on traditional bond ratings.
The insurance industry's decision to pick Pimco comes in the wake of sharp criticism that rating agencies Standard & Poor's, Moody's Investors Service and Fitch Ratings mis-rated huge swaths of collateralized debt obligations and structured debt.
"We are not strategically looking to replace the rating agencies, but we believe there is a role for people doing rating agency type work," Weil said. "The NAIC made a decision to seek an alternative approach."
The advisory business represents a significant change for Pimco as it expands into areas such as equities outside its core strength in bonds. The firm manages more than $940 billion in assets, mostly in fixed income.
Pimco Advisory is a separate business line housed in a separate building, with a staff that has gone from zero to 40.
Globally, Weil said about 80 percent of Pimco's advisory clients are based in the United States, and about 20 percent from Europe.
A small sliver of business comes from Australia, New Zealand and Hong Kong, said Sabrina Callin, Pimco's lead adviser in its role with the Fed's Commercial Paper Funding Facility, who joined Weil in the interview.
Weil said the global financial crisis will play a role in public and private finances for some time to come, providing just one avenue of growth for Pimco Advisory.
"The reverberation of this crisis is going to continue for years, and it will move geographically, and it will move through different sectors," he said, noting concerns about commercial mortgage-backed securities.
"Commercial real estate is clearly (an issue), but residential real estate we don't think has hit bottom either, so we don't think it's clear sailing there," he said. "There are significant additional issues in Europe's financial system, so there are three areas" that may drive business.
Pimco Advisory this year, for example, helped a British bank liquidate its collaterized debt obligation positions at a favorable mark, and Weil sees more business opportunities in both the United States and Europe as bank failures are expected to mount.
Pimco's position as a unit of Allianz SE, Europe's biggest insurer, could help it win business in Europe as it competes with BlackRock and other rivals. Outside the United States, Pimco Advisory has offices in London and Munich.
"We've been selected by some public sector clients in Europe to work with them, and we see a lot of opportunity going forward," Weil said.
Pimco began receiving numerous calls at the beginning at the year for advice on management of troubled assets, which Weil estimates will take "five to 10 years" to properly mark or liquidate.
"I think it's sustainable that Pimco will know more about troubled asset classes than the internal staff," Weil said. "No disrespect to other firms, but it's organizationally impossible to maintain a level of staff that's necessary."
He expects to hire as many as 10 more employees by the end of 2010 in anticipation of distressed debt and real estate markets.
"I believe people are always going to need help in special circumstances," Weil said. "And I think we're positioned to offer that."
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