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Pimco Exec: Recession’s End to Usher in New Era

At the other end of the recession lies a “new normal,” according to Mohamed El-Erian, chief executive of Newport Beach-based bond fund manager Pacific Investment Management Co.

El-Erian, who also serves as co-chief investment officer with Pimco cofounder Bill Gross, talked about the state of the economy and offered his outlook at a lunch last week honoring him as the Business Journal’s businessperson of the year for 2008.

The economy won’t correct back to where it was a few years ago but rather morph into something new, El-Erian said at the OC Forum luncheon in Irvine.

What he called the “new normal” will have more government involvement, slower growth, less risk taking by financiers and lower consumer expectations.

“The implications of the new normal will impact everyone,” El-Erian said.

The hallmark of the new normal will be the government’s role as an economic player, rather than a referee, he said.

“Whether we like it or not, the U.S. government is becoming a bigger owner and controller of key institutions,” he said.

Having the government as a player changes the rules, according to El-Erian, since the government has its own interests.

State control of Citigroup Inc. and American International Group Inc. has upended the system, according to El-Erian.

The notion of “privatizing profits while socializing losses” hasn’t set well with people, he said.

Growth also is being hindered by countries becoming more protective and favoring their own national champions, El-Erian said.

2008 was “the year the unthinkable became thinkable,” he said.

He called 2008, El-Erian’s first year back at Pimco after a stint running Harvard University’s endowment fund, one of his “most enjoyable.”

El-Erian earned the Business Journal’s businessperson of the year honor for his triumphant return to Pimco last year.

He started 2008 as Pimco’s first co-chief executive and co-chief investment officer. He ended 2008 as sole chief executive with the retirement of longtime leader Bill Thompson.

(Since retiring, Thompson has been selected as a director at Citigroup.)

El-Erian, a managing director and senior portfolio manager with Pimco up until 2005, still shares the co-chief investment officer title with Gross, Pimco’s biggest name. The two sit next to one another on Pimco’s Newport Center trading floor, where they set investing strategy.


Total Return Fund

Gross’s Total Return Fund is the largest mutual fund in the world. Last fall El-Erian launched his own fund, The Global Multi-Asset Strategy Fund.

El-Erian also joined Gross in 2008 as a regular market commentator on television and in newspapers and other media.

His book “When Markets Collide: Investment Strategies for the Age of Global Economic Change” won the 2008 Financial Times and Goldman Sachs Business Book of the Year award.

El-Erian’s return to Pimco answered what for some was a nagging succession question. Gross, nicknamed the “king of bonds,” is 65 and casts a long shadow at the company. Thompson was the critical behind-the-scenes executive who ran what’s now a global bond empire.

Gross, with Thompson, sold a majority stake in Pimco eight years ago to Germany’s Allianz SE to create a global powerhouse with more than $1.5 trillion under management. Pimco manages half of that.

Gross hasn’t indicated any plans to retire. But succession hasn’t been an issue for clients and company watchers since El-Erian came back.

El-Erian also fits Pimco’s increasingly global outlook. Recently, the company has gone after deregulating investment markets in Europe and Asia, where El-Erian’s pedigree comes across well.

He’s the Egyptian-born son of a diplomat. He speaks Arabic and French and holds a doctorate from Oxford University.

Earlier in his career, he spent 15 years at Washington, D.C.-based International Monetary Fund, which he said gave him experience in policy making that complements Gross’s private experience.

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