Man Group CEO Roman to Lead PIMCO | Chief Investment Officer

Manny Roman, PIMCO Manny Roman, who will lead PIMCO from November 1.PIMCO has appointed Man Group chief Manny Roman as its next CEO, effective November 1.

Roman will succeed Douglas Hodge, who has led the Newport Beach, California-based company since 2014. Hodge will become managing director and senior advisor, PIMCO said in a statement.

“Manny’s deep understanding of global markets, unique skills in investment management, and appreciation of PIMCO’s macro-based investment process make him the ideal executive to position the firm for long-term success,” said Daniel Ivascyn, PIMCO’s group CIO.

The appointment indicates a shift back towards PIMCO’s traditional core focus on fixed income. In this morning’s statement, PIMCO referred to Roman’s “expertise in fixed income” during his 30-year career in financial services.

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“PIMCO has become the global leader in active management of fixed income by seeking to provide investors with innovative solutions as the global markets change,” said Hodge. “As the asset management industry continues to evolve, Manny will bring new perspectives to PIMCO’s leadership team and add his unique talents to our already successful firm and I look forward to working with him.”

Last year, PIMCO shut down two equity strategies following the resignation of Virginie Maisonneuve from her role as global equities CIO. She went on to launch a boutique consulting firm in October, recruiting four former PIMCO equities specialists.

Roman joined Man Group in 2010 following the fund manager’s acquisition of GLG, and was appointed president in 2012. He became CEO the next year. At GLG Roman was co-CEO for five years, and previously held senior roles at Goldman Sachs.

Man Group announced this morning that Luke Ellis will succeed Roman as its CEO from September 1. Ellis is currently president of the company, which manages $78.6 billion.

PIMCO’s outgoing CEO Hodge was responsible for steering the company through its toughest period following the shock exit of Bill Gross in September 2014, and ex-CEO Mohamed El-Erian a few months earlier. Chief Economist Paul McCulley left the firm in 2015 after working there on-and-off since 1990.

In a separate announcement earlier this week, PIMCO made two additions to its senior portfolio management staff.

Credit Suisse’s Danielle Luk has joined as executive vice president and portfolio manager, specializing in interest rate derivatives. Tiffany Wilding, director of global interest rate research at hedge fund Tudor Investment, will be the firm’s new US economist.

The pair join new hires Gene Frieda and Yacov Arnopolin, whose appointments to PIMCO’s emerging markets team were made public earlier this month. Frieda, global strategist for emerging markets, was previously a partner at Moore Capital Management—another hedge fund—while Arnopolin, a portfolio manager, joined from Goldman Sachs Asset Management.

Ivascyn said Luk’s and Wilding’s hires were examples of the “top industry talent” PIMCO has added to its roster, adding that the firm has hired more than 140 new employees globally so far in 2016.

Reporting by Nick Reeve and Amy Whyte

US public pensions make the riskiest investments of any pensions funds around the world—and research has shown that risk has not paid off in the form of excess returns, but quite the opposite.

“Asset allocation decisions are in substantial part driven by regulatory incentives.”American public funds underperform other pension plans—including Canadian and European pensions, as well as corporate US plans—by 57 basis points per year, according to Aleksandar Andonov (Erasmus School of Economics), Rob Bauer (Maastricht University), and Martijn Cremers (University of Notre Dame).

This underperformance was “particularly strong” among mature funds with large allocations to equity and alternative assets, the researchers found. None of the other categories—corporate, European, and Canadian—underperformed on average.

“The underperformance of US public funds in equity and alternative assets can be potentially explained by excessive risk-taking,” the researchers wrote.

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This “excessive risk-taking,” they explained, was the result of the unique regulatory incentives faced by public pensions in America. Public pension regulations in the US link liability discount rates to expected return on assets. The higher a pension’s expected return, the higher the discount rate—and the higher the discount rate, the better that pension’s funding position.

Given that poor funding ratios can entail increases in contribution payments and pension benefit reductions, funds are pressured to maintain often unrealistically high return targets, which in turn require significant investments in risky assets.

“US public funds may be looking for additional investments in risky assets at times when they have relatively fewer attractive opportunities or limited capacity to select and monitor additional risky investments,” the trio wrote.

The result is that funds underperform, missing their return targets and worsening their funding positions.

Meanwhile, since Canadian, European, and corporate plans all face regulatory environments that base liability discount rates on high credit quality interest rates—which cannot be managed by modifying allocations to risky assets—these funds maintain more appropriate strategic allocations.

“Asset allocation decisions are in substantial part driven by regulatory incentives,” the paper concluded.

Read the full paper, “Pension Fund Asset Allocation and Liability Discount Rates.”