Given his impressive long-term track record, Dan Ivascyn makes for a compelling star manager profile in his own right. The fact that PIMCO’s AAA-rated income star has stepped into the giant shoes of Bill Gross following the toughest year in the company’s 44-year history only adds to this.
Ivascyn became PIMCO’s group CIO last September following the well-documented sequence of events that saw both its founder and his potential-long term successor, Mohamed El-Erian, leave the firm – the former in acrimonious circumstances.
Unsurprisingly, Ivascyn is keen to play down the fallout from the last year, insisting the group is now more closely knit. His appointment came as little surprise, with him widely tipped to take the helm of what was once considered an impregnable ship that has been rocking severely of late.
With Gross’s Total Return fund haemorrhaging assets after his departure, the firm made stemming those outflows the number-one priority, along with overhauling the old management structure to create a more inclusive senior management panel of deputy CIOs.
In such circumstances it is perhaps unsurprising that Ivascyn’s fund manager pedigree has been overlooked in some quarters, as he had to act as firefighter rather than fund manager through the latter half of 2014.
On his flagship income franchise, made up of the $40 billion PIMS Income and $8.7 billion PIMCO GIS Income funds, Ivascyn takes first place out of 114 managers in Citywire’s US bonds sector over the past five years to the end of November 2014.
Asked about how he and the group have dealt with the fallout following Gross’s departure, he chooses his words carefully.
‘We are a tighter group now but also a competitive bunch who like to project our competitive nature.’
Although PIMCO has a deep bench of 260 portfolio managers, the competitive bunch that Ivascyn is talking about are primarily his deputy CIOs: AAA-rated Scott Mather, AAA-rated Mark Kiesel, A-rated duo Andrew Balls and Mihir Worah, and equity CIO Virginie Maisonneuve.
Marc Seidner rejoined the group as CIO for non-traditional strategies and head of portfolio management following Ivascyn’s appointment to the top investment role.
‘It has been great working through this tough period with them, and we are continuing to work hard.’
Emphasising the close-knit nature of the senior management after a period where rumours of splits and feuding were rife, Ivascyn says: ‘Me and Scott [Mather] go way, way back and we are as close as it gets on the trading floor.
‘In terms of the rest of the team we talk every day and frequently with Marc Seidner and Virginie.’
Ivascyn credits his former Bear Stearns and PIMCO colleague Scott Simon with helping shape his deeply analytical investment approach. Simon was head of mortgages at PIMCO for 13 years before leaving in January 2013.
‘Scott taught me how important it is to protect investors from our own instincts. Managers can often be a confident bunch, so I try to run money using a very structured process where we constantly challenge each others’ views and take out personal bias. I try to look back and understand the mistakes that were made and learn from them, because no one can get everything right.’
Moving on from Gross
Pressed again about the impact of Gross’s departure and the subsequent press revelations, Ivascyn is again careful with his answer, but admits there was a fair amount of introspection.
But there is also a clear message that the firm must look forward and keep its primary focus on the investment process, rather than dwelling on what has gone wrong at the top over the past year.
‘We as a firm are constantly self-reflective and over the last few months most of our focus has continued to be on process and investment. In terms of Bill’s departure we have tried to not spend a lot of time thinking about that.
‘I encourage all of our employees to look forward. It is all about enhancing the investment process to improve our proposition.’
Ivascyn emphasises that with the changes at the top over the past 12 months, PIMCO’s steady stream of manager hires has received far less attention than normal.
‘We have been making a lot of portfolio manager hires over the past few years but a lot of that has got lost in all the recent news. We intend to make a lot more.
‘The executive committee and I have been encouraging other portfolio managers to focus on the investment process – that is the most important thing.’
He is also clear that over the past few years he had been getting more active in the senior management and corporate governance areas, overseeing along with El-Erian and Gross the advent of two-yearly elections for portfolio managers to the firm’s investment committees.
‘I had worked very closely with Bill and Mohamed as chair of the portfolio management group for several years,’ he says.
In terms of dealing with what deputy CIO Andrew Balls recently told Citywire is the firm’s number one priority – stemming the outflows from Bill Gross’s former flagship fund PIMCO Total Return – Ivascyn admitted that much of his time after Gross’s departure had been taken up with meeting the firm’s institutional clients.
‘In the days and weeks afterwards, we spent a lot more time meeting with clients and explaining that our process focuses on the longer term. We are looking to put together our views that get across ideas that we think will work over the next 12 to 18 months.
‘Certain clients have elected to depart, but many are sticking with us. Overall we are very thankful to have a tremendous group of clients.’
Around 80% of Ivascyn’s assets under management are held within the flagship income strategy, but he’s also overseen the expansion of many of PIMCO’s diversified hedge fund products.
In particular this has meant opportunistic real estate strategies and other structured products focused on real estate and residential investments in Ireland, Spain and Germany.
Aside from the increase in managerial duties following the departure of Gross and El-Erian, Ivascyn’s only extra fund manager role was to become part of the unconstrained global bond team, which he joined alongside Mohsen Fahmi and Saumil Parikh. ‘I tend to split my time between the income and alternatives strategies,’ he says.
Ivascyn describes himself as a ‘goofy kid’ who enjoyed soccer and basketball, but always had an ear out for financial news. ‘I liked sports, but always listened to business talk radio and had an interest in finance.
‘I quickly realised I wanted to get into trading,’ he says.
He went on to take a degree at the University of Chicago and a business MBA at the Chicago Booth School. It was very focused and the course led to an internship at Bear Stearns.’
It was 1997 and Ivascyn had his first taste of crisis management by working at Bear Sterns when the group was handling all the settlements from the blow-up of US hedge fund Long Term Capital Management.
‘It was the first time we saw a big issuance boom in the US.’
Bear offered him a full-time job, but Ivascyn was already late in the cycle of being interviewed by Bill Gross to take a job at PIMCO. Ivascyn got the job and has remained at PIMCO ever since. He joined in 1998, just two months after one of his deputy CIOs, Scott Mather.
Back then PIMCO was a lot smaller, and Ivascyn describes PIMCO as a ‘lean and exciting place’ where he quickly focused on the mortgages area.
‘It was a close call because I also liked the people at Bear Stearns and it was also strongly focused on performance, but I could get involved in an investment project at an early stage, and I have stayed within the mortgage space ever since.’
The PIMCO of the late 1990s was a lot smaller than today, with all the managers and traders located in one small room, Ivascyn recalls.
He began with agency mortgage backed securities (MBS) before moving into credit and asset-backed securities and MBS, before migrating into credit-sensitive areas. By the early 2000s, he had added alternatives and diversified products to his armoury.
‘I became more of a generalist and started to focus on hedge funds.’
The huge expansion in the group’s assets picked up apace going into the global financial crisis, with Ivascyn able to sidestep much of the more risky housing-related credits that subsequently blew up.
‘As a group we did a pretty nice job going into the financial crisis by avoiding some of the most credit-sensitive areas of the housing market. We collectively got that important call right and were able to distinguish ourselves from many of our competitors.’
Ivascyn’s best and worst moments
Best performance: 2007-2008
Ivascyn admits that the years leading into the global financial crisis were frustrating as his cautious view on credit was not rewarded, but that call proved to be the right one as most competitors were hit more severely by the US subprime blow-up and were less able to take advantage of assets trading at distressed levels.
‘This was a period where we were able to distinguish ourselves. If you are able to withstand such a big market shock, it allows you to go on the offensive.’
Worst performance: last quarter of 2010
‘We had significant underperformance in the short term from our credit selection. I always try to take a one- to three-year view on the income fund, and we want to bend not break. A lot of the best assets are in vulnerable areas, and we are very happy taking someone else’s near-term concerns as long as we see long-term value.’
Low yields set to stay
Looking forward, like most of his bond peers Ivascyn believes generally low growth and low bond yields will prevail.
‘There is still some risk aversion from the financial crisis, and growth will continue to be low with central banks keeping yields lower.’
Having just finished PIMCO’s quarterly investment forum in which investment views are established for the coming year, Ivascyn sees little to change the current backdrop.
‘We still think yields will remain range bound and the US economy will continue to strengthen and the Federal Reserve will take rates higher in 2015.
‘Meanwhile, we expect China and Japan to continue to be accommodative in their monetary policy.’
While Ivascyn acknowledges that there are definite risks around ‘lower for longer’ bond yields, he believes strong structural support for the asset class will remain owing to the ever-growing number of elderly investors looking for a less volatile asset class than equities.
Against the backdrop of strong growth in unconstrained bond investing, it is perhaps unsurprising that Ivascyn is quick to defend the more traditional long-only style of bond investing that first made Gross – and PIMCO – so successful.
‘Throughout my career I have seen tilts in demand for corporate bonds, and I strongly disagree with the view that benchmark investing is over. There will always continue to be a need for benchmark fixed income investing.
‘Corporate bonds are critical as this sector is the one that should provide stability in times of economic stress.’
Due diligence gap in unconstrained bonds
Ivascyn is also keen to emphasise the ever-growing need for due diligence from unconstrained bond managers as they hunt further afield to pick up attractive yields. ‘People in the unconstrained bond space must really understand what they are buying.’
Although Ivascyn accepts that fund management is a tough business, those who stick to their process will gain rewards over time.
‘Generating investment performance is challenging. You have to step back and work to find the mispricings in the market and work out how regulation or different management preferences towards risk affect it.
‘There will always be opportunities in areas such as deleveraging, and we are looking to take advantage of others’ liquidity preferences in order to find long-term alpha.’
This article originally appeared in the February issue of Citywire Global magazine