This content is from: Corner Office
Bill Gross Made a Mess of PIMCO. Manny Roman Is Here to Clean It Up
Inside the quest to make the world's most famous bond manager boring again.
Never before in the history of Pacific Investment Management Co. had $1.4 trillion looked so small.
It was late September 2014. The firm’s co-founder and chief investment officer — the brilliant but mercurial Bill Gross, known as the bond king for his decades-long streak of stellar returns — had abruptly resigned via a handwritten letter left at the firm’s offices in the middle of the night.
Gross’s shocking exit capped months of mounting tensions at the firm. His heir apparent, PIMCO CEO Mohamed El-Erian, had resigned that January after openly arguing with Gross; other portfolio managers had threatened to walk if Gross wasn’t fired, according to press reports at the time. The performance of Gross’s funds, including the once-$293 billion Total Return Fund, had faltered, and his behavior had become even more eccentric than usual: One of his later investor letters was mostly a paean to his dead cat; another likened sneezing to an erotic experience. Several of the firm’s pension clients put the firm on a watch list.
Still, when Gross left, so did many of the firm’s investors, draining hundreds of billions of dollars in assets out of the firm. Questions swirled around whether the firm could survive without Gross, who had co-founded it in 1971 with just $12 million in assets and built it into a $2 trillion fixed-income powerhouse.
PIMCO moved quickly to stanch the Gross-induced bleeding. The firm appointed PIMCO chief operating officer Douglas Hodge as CEO, promoting then-deputy chief investment officer Daniel Ivascyn to CIO and elevating several other long-time portfolio managers to senior roles, putting a trio of them in charge of the Total Return Fund. Then, in October 2015, Gross — who had since joined what is now Janus Henderson — slapped the firm with a lawsuit seeking more than $200 million in damages, saying he had been forced out by “a cabal” of PIMCO executives “driven by a lust for power, greed, and a desire to improve their own financial position” to deny him a nine-figure bonus. Gross declined to comment for this story.
After the firm started to recover from the turbulence, PIMCO’s executives began to look to the future. Then they made a bold move, surprising both investors and the marketplace with the announcement in July 2016 that Emmanuel (Manny) Roman would take the reins as CEO.
Roman, 54, was “an inspired choice, and a risky one,” Donald Putnam, founder and managing director at investment and merchant bank Grail Partners, told Institutional Investor at the time. A native of France, Roman was an unknown entity to the PIMCO rank and file; he was the first PIMCO outsider to take the top job in the firm’s history, and he had never managed a firm with anywhere near that level of assets.
But Roman had engineered a successful turnaround at U.K. asset manager Man Group and steered his previous firm, GLG Partners, through some tumultuous episodes, ultimately selling it to Man Group for $1.6 billion, a staggering premium. He was highly regarded by former colleagues and employees as an intensely focused, process-driven manager who had a track record for institutionalizing businesses that needed to be tamed but who could also command the respect of egotistical star managers thanks to a strong grasp of the markets.
Today, roughly a year after Roman officially started at PIMCO, several of its largest funds are outperforming their competitors, and it’s had four consecutive quarters of asset inflows, including a record $62 billion in the second quarter of this year. Mutual fund tracker Morningstar just upgraded PIMCO’S Parent Pillar rating — one indicator of how it scores mutual fund firms — to positive from neutral, reflecting the firm’s more stable footing post-Gross.
And while PIMCO’s assets are still a long way from their Gross-era peak, today it has $1.69 trillion, including $400 billion from parent company Allianz, up respectably from its nadir of $1.4 trillion after Gross left. The firm’s asset mix is far more diverse than it was under Gross — at the time of his departure, Total Return accounted for a substantial chunk of the firm’s assets — and its legal feud with him has been settled for $81 million. In December it also settled charges with the Securities and Exchange Commission for $20 million that it misled investors in its Total Return ETF about the performance and did not accurately value its holdings.
Part of PIMCO’s recent success comes down to Ivascyn, who has successfully guided the firm’s biggest portfolios and generated strong investment returns. The $99 billion PIMCO Income fund, which he manages with Alfred Murata, has outperformed 99 percent of its peers over the past three years; some PIMCO funds managed by others have also performed well.
“First and foremost, performance is really, really good,” Roman says in an interview at the firm’s Newport Beach headquarters. The new CEO is sitting in the Founders Room, an expansive conference room rechristened as part of the firm’s settlement with Gross. One wall affords stunning vistas of the Pacific Ocean; the other sports six stipple portraits, one each for Gross and five other PIMCO executives.
“Whether you look at one, three, or five-year periods, it’s the best performance period in our history,” Roman continues. “And I think a lot of credit goes to Dan and the whole team for having navigated the markets remarkably well. Obviously, that makes everything much easier.”
But Ivascyn and others say at least part of PIMCO’s recent success can also be traced to Roman, whom current and former colleagues say is at once a cerebral polymath and a take-charge, no-nonsense decision maker. Roman enjoyed a “blistering” 18-year career at Goldman Sachs, in the words of a former colleague, making partner before joining London-based hedge fund firm GLG in 2005. As co-CEO of GLG with Pierre Lagrange, Roman played an instrumental role in the firm’s acquisition by Man Group, where he became chief operating officer in 2010 before rising to the CEO role in 2013.
“Since Manny’s been here we’ve seen the stability in the form of most financial metrics: stabilization in AUM, positive flows, continued strengthening of the partnership with Allianz — we have real good relationships there,” Ivascyn says. “I think Manny brings a lot of that to the table. He holds people to a very high standard, which we need if we’re going to truly have a performance culture. But he also is quite fair and well balanced, with good values.”
Roman also played a key role in brokering the truce with Gross, meeting with him at his Janus office in January, according to a Wall Street Journal report. Roman told Gross that PIMCO would be willing to accede to one of Gross’s wishes — recognition within the firm for his achievements — but that if he refused to settle, he should prepare for an ugly trial, according to the report, which called the discussion “intense.” The case was settled after PIMCO’s lawyers made a better financial offer to end the dispute, the report said.
At Man Group, former colleagues say, Roman acted decisively to revive a firm whose flagship quantitative strategy, AHL, had suffered several years of poor performance. He slashed the firm’s cost base by about half, including a roughly 20 percent reduction in its workforce in his first year on the job, and diversified the business via a string of successful acquisitions.
Ultimately, Roman’s tough decisions paid off. During his tenure, the publicly traded firm’s assets increased by 34 percent, while its share price rose by 19 percent.
But at PIMCO he faces an arguably tougher task. While the firm seems on solid footing today, it remains to be seen whether PIMCO — a big, active asset manager in a world that’s increasingly tilting toward passive strategies, at a time when fees are under intense pressure — can transform itself beyond the 46-year-old business model on which it was founded. There is also a question of whether it can hold onto its status as one of the biggest and most successful asset managers in the world.
“When a firm is that successful, to maintain that success is incredibly hard, never mind to try to move forward,” says Luke Ellis, chief executive officer of Man Group, who first met Roman as an investor in GLG’s funds and then later worked with him at Man Group. “It’s like being the New England Patriots — winning a Super Bowl is hard; winning a second and third is harder. The existential challenge there is to maintain the drive and the quality and the delivery that they’ve done that got them there.”
Meanwhile, Roman has entered the job several decades into a bull run in fixed income assets, and he has to figure out how to position the business for when that run inevitably ends. It may already be happening in some fixed income strategies, as Morningstar analyst Miriam Sjoblom points out. For example, the Income Fund has done well in the past from investments in non-agency mortgages that had experienced once-in-a-lifetime dislocations.
“The easy money has been made in that sector, so it’s going to be challenging for that fund to deliver similar levels of returns going forward,” she explains. “As that strategy grows and opportunities in the non-agency mortgage market continue to go away, that’ll be a challenge for the firm.”
And while a significant selloff in the bond market seems an unlikely probability for the near term, it would be bad for the firm if it did happen, given PIMCO’s intensive efforts, particularly in recent years, to focus purely on fixed income. The firm has largely abandoned its efforts in fundamental equities; it shuttered its PIMCO Pathfinder and PIMCO Emerging Markets Equity strategies in 2015, and its CIO for global equities, Virginie Maisonneuve, plus the portfolio managers and analysts for those strategies, all left the firm that year. It also shut down its active equity dividend business last year.
The firm also faces competition from scrappy upstarts. These include Jeffrey Gundlach’s DoubleLine Capital, which recently picked off a $3.4 billion mandate from variable annuity provider Jackson National. Earlier this year, Jackson National announced it had changed the subadviser for its JNL/Total Return Bond Fund to DoubleLine from PIMCO. Some of the assets that left following Gross’s departure went to rival firms and may not return — at least not any time soon.
Finally, the firm has to persuade investors spooked by the drastic redemptions after Gross’s departure that it is no longer dependent on a small handful of superstars — a feat made harder now that Ivascyn’s PIMCO Income fund has swelled to nearly $100 billion, up from $70 billion toward the end of 2016.
Sjoblom notes that it is fair to wonder whether PIMCO’s business could become too concentrated, given that it happened in the past with Total Return. “Will PIMCO be thoughtful about letting the business hinge on one strategy?” she asks.
For Roman, the answer lies in striking the right balance between preserving the best parts of Gross’s legacy — a singular focus on performance and a blazing work ethic — and moving beyond the most controversial.
“Some of Bill’s legacy and some of the founders’ legacy are absolutely great,” says Roman. “You wouldn’t believe how hard people work in this place. We’re all here at 5:30 a.m. People work enormously hard, and they’re competitive — they look at the numbers and they know what other people are doing, and that’s a great legacy. What I think has to change is the fact that it’s about a team and it’s about 2,200 people, and it’s not about the CIO and the CEO.”
To put it simply, after years of headlines and drama, Roman and Ivascyn, who enjoy an extremely close working relationship, seem intent on making the firm, well, boring — or, to use their preferred parlance, “industrialized.”
“That means that performance comes from the work of many people,” Roman elaborates. “It’s not one great person who does everything. You talk about Dan, but the guy who co-runs the fund with him is a guy called Alfred Murata, who is absolutely stunning. We have 64 partners. We have six CIOs, and they’ve been here for a long time.”
Roman says Ivascyn is on board with this philosophy. “Our job is to groom a generation of great investors,” he says. “Dan is pretty humble. I think he believes in the industrial process; he believes in building a generation of great investors. That’s a big difference with Bill, and I think a good one.”
Manny Roman did not seem destined for a career in asset management. Born and raised in Paris to artist parents, Roman displayed a gift for mathematics and attended the University of Paris IX Dauphine, earning a bachelor’s degree in applied mathematics before setting off to the famed University of Chicago Booth School of Business. There he earned an MBA in finance and econometrics in 1987 before moving straight to Goldman Sachs, rising through the ranks to co-head its worldwide global securities and European equities businesses. He was a partner by 1998, and co-head of European equities by 2003.
Johannes Huth, KKR’s London-based head of private equity for Europe, the Middle East, and Africa, first met Roman in business school; their paths crossed later when both worked for investment banks in London. Huth describes Roman as a “Renaissance man” in terms of the breadth of his interests.
Roman has a passion for the finer things — he collects art and rare books, and boasts a 6,000-bottle wine cellar — but is also a devoted supporter of London’s Arsenal Football Club. He holds a seat on the board of publishing giant Penguin Random House, which he got after cold-calling and persuading them that he had no agenda other than a love of books — and has been a trustee of The Paris Review. (Roman says one thing he particularly misses about his Man Group days is that he is no longer affiliated with the Man Booker Prize, the esteemed British literary honor that the asset manager began sponsoring in 2002.)
“You name it, he’s probably interested in it,” says Lagrange, now a senior adviser to Man Group. “He could have been a concert pianist, a painter, a winemaker, a philosopher, an editor, a pure intellectual, a trader — I can’t even start to tell you where his interests lie; they lie everywhere.”
Roman’s intellectual interest in the financial markets helped propel his rise in the world of global finance; although he was never directly a risk taker, his command of the markets — along with a driven, focused management style — earned him the respect of always-skeptical portfolio managers.
After 18 years, Roman left Goldman to join GLG, a then-ten-year-old, fundamentally focused hedge fund firm that had spun out of Lehman Brothers five years earlier. GLG, one of the first hedge funds in London, had a cowboy culture prior to Roman’s arrival, characterized by a handful of swaggering portfolio managers who traded aggressively and put up big numbers.
“In a star culture, people don’t take orders from a nobody,” says Lagrange, who persuaded his GLG co-founder Noam Gottesman to bring in his friend Roman for an interview. “For managers there’s very little room for the people who are not managing or making the money. So we felt we needed somebody who was going to stand up to the founders, somebody we’re going to respect, somebody who’s got intelligence, who’s got drive, who’s going to be coming with views and coming in with authority.” Former colleagues say Roman won over the risk takers by knowing “to his fingertips” what was going on in the financial markets at any given time. He was also rumored to always know the top 20 positions in each of the firm’s funds.
“I remember when the guys from the CNRS came,” says Lagrange, recalling a meeting at GLG with executives from the pension fund of France’s national center for scientific research. “These are rocket scientists. They start the conversation about some obscure mathematical stuff, and Manny was totally on top of it. And the fund managers who were with me, they all look at me and say, ‘How does he know all this?’ That happened again and again and again in the years we worked together. I don’t know half the things he knows — I can bluff a little bit, but I am quickly out of my depth. I’ve never seen him be out of his depth.”
Working at GLG presented Roman with his first serious challenges as an asset management executive. In 2006, the firm and one of its former star portfolio managers, Philippe Jabre, were each hit with fines of £750,000 (then $1.4 million) over trades Jabre had made in Sumitomo convertible bonds, which the regulator for the U.K.’s financial markets said were conducted using improper inside information. GLG was deemed to be “vicariously liable” for not properly monitoring Jabre. (Jabre chose to appeal the decision but later dropped it; GLG declined to file an appeal, and Jabre never returned to the firm. He later founded his own hedge fund firm, Jabre Capital Partners, in Geneva. Jabre declined to comment for this story. The episode was the first of a few brushes with regulators over the years for GLG.)
Then, in 2008, another star GLG portfolio manager — emerging-markets trader Greg Coffey — announced he was leaving the firm, prompting investors to pull more than $1 billion out of the funds he managed.
Lagrange says Roman deftly steered the firm throughout the various crises. “I don’t think we would have had such a good outcome without him,” he says. “He brought us a much more institutionalized management. He was very instrumental in getting us to the next level.”
That next level included a listing on the New York Stock Exchange in 2007 via reverse merger with special-purpose acquisition company Freedom Acquisition Holdings, followed by the acquisition by Man Group. The former deal netted a $630 million payday for Roman, Gottesman, and Lagrange; the latter deal also resulted in a sizable windfall and catapulted Roman into the upper ranks of Man Group’s management. He was appointed COO shortly thereafter, and became CEO in 2013.
At Man Group, Roman faced more difficult tasks, including layoffs and reduced reliance on AHL, once its prized profit engine, which had disappointed investors for years.
“The reality is, Man needed a radical reengineering and it needed a change of the culture,” says Man Group CEO Ellis. “Apart from anything else, it needed a massive change in the cost base. There was the need to professionalize everything in the firm, and Manny is very good about getting people to understand they need to be professional in what they do, to not be frivolous, and get the cost base down.”
After Roman’s appointment as COO, he promoted several GLG executives to senior roles at Man, a move that press reports at the time said helped him shore up his power base — and put him in a contest against then-CEO Peter Clarke to rule the firm. Roman denied the existence of a power struggle between him and Clarke, saying in a 2013 Financial Times interview, “Peter is my friend. I think the success or failure of a group rests on the group, not on one individual.”
One former colleague says that while Roman was well liked, he had a “velvet fist” and was unafraid to make tough decisions. Lagrange says Roman is warm and caring, both as a boss and a friend, but has “a French abruptness” that can sometimes give the opposite impression — a view Ellis confirms.
“There can be a slightly gruff exterior the first time people meet him,” notes Ellis, who adds that Roman is equally capable of being charming. “The reality is when you work with him, he is incredibly concerned for people’s welfare. I could give a hundred stories of Manny stepping in to help somebody in a personal situation, whether it’s health related or something else. He would go hugely out of his way to make sure that people felt looked after.”
As Ellis explains, that created a reserve of goodwill that led employees and colleagues to give Roman the benefit of the doubt when it came to business decisions. That in turn led people to trust him and do what he said, partly because he eschewed an argumentative style in favor of a more persuasive approach, adds Lagrange.
“If he wants you to do something, he’s basically going to convince you why you want to do it, and get you to do it — not out of coercion, but with persuasion, which is actually much more difficult to argue,” says Lagrange. “You would end up doing things you can’t believe you’re doing, because you were made to understand it was the right thing to do.”
That decisive and persuasive nature may be one reason why Ivascyn and a handful of other PIMCO executives chose Roman to succeed Hodge (who stayed on as managing director and adviser). Roman accepted the job after a series of meetings in Newport Beach with the executives.
Roman’s focus and drive made him a good fit for PIMCO, where Gross had created a famously intense culture with a laser-like focus on investment performance. It also helped that Roman hit it off instantly with Ivascyn.
“It’s like an arranged wedding, and it worked out great,” jokes Roman. “I think we’re like long-lost brothers who found each other, and it’s a great relationship. We have a lot in common, and he’s just a damn good investor. We talk every day, sometimes not about work.”
Ivascyn returns the praise. “Since he’s been here, I think we’ve had a real good relationship. It’s quite informal. And we encouraged Manny to get to know the [portfolio management] team.”
That is yet another departure from the Gross era. Ivascyn says that in the past, members of the executive office would not sit in on investment committee meetings, a convention Roman has bucked. “I think he has established relationships that are quite deep and in many respects remind me of [former PIMCO CEO] Bill Thompson way back when in terms of the style — just getting to know PMs and understanding different perspectives,” Ivascyn adds.
But one thing that remains a holdover from the Gross era is PIMCO’s macroeconomic focus, which the firm couples with an intensive bottom-up research process. The firm’s investment committee meets three times a week, for three hours at a time, to discuss macro issues. Roman says he relishes being a part of it.
“We have endless debates about various topics,” he says. “I think people learn from that and I think they value that. We spent two days talking about Treasury auctions; yesterday it was about the result in Spain and Catalonia and our exposure and global portfolio in terms of Spain. For someone who came, like me, from the outside, the quality is mind-blowing, just the depth of the information.”
That process, one of Gross’s famous hallmarks, has apparently continued to pay dividends. The institutional share class of the PIMCO Income fund returned 7.77 percent through October 23, outperforming 88 percent of its peers, according to Morningstar Direct data. The fund took in $23.5 billion in net new money over the 12 months ending in August and is now the industry’s biggest actively managed bond fund. PIMCO Total Return — although down nearly 75 percent from its peak in terms of assets, to $74.7 billion — gained 4.86 percent this year over the same period, besting 92 percent of its peers, and just recorded its first quarter of net inflows in four years.
But maintaining the levels of performance PIMCO has reached recently — at a time when active management in general is under siege — will not be easy. However, Roman argues that this is a much bigger problem for equity managers than for fixed income managers. (Morningstar’s Sjoblom shares this view.) Roman points to the firm’s recent research showing that active fixed-income managers have largely beaten their passive counterparts, unlike their active equity peers.
There’s also the issue of keeping the talent around. In the Morningstar report, Sjoblom and her colleague Eric Jacobson wrote that PIMCO has “taken steps to prevent its strategies from being overly dependent on just one individual,” in part by naming co-managers on several strategies, allowing senior investment professionals — who make up five members of its nine-person executive committee — to have substantial sway in the firm’s direction, and by initiating a series of retention bonus payments, which were completed this summer.
When asked if PIMCO could survive without Ivascyn, Roman points out that while the firm’s CIO isn’t likely to leave, it still has a substantial talent bench, one it continues to grow.
And he remains focused on the future. He is planning to hire some 200 people across various areas of the firm in the next year and is leading an effort to make the firm more global. He’s also building out the firm’s quantitative effort and expanding its efforts in private credit, with the announced hire earlier this year of Greg Hall from Blackstone Group to lead PIMCO’s $12 billion private strategies group.
He’s also getting used to life in Southern California. Though Huth wondered how his friend would acclimate to the culture, Roman — who is divorced and has two adult daughters — seems to have found a way to make it work for him. He doesn’t drive, instead taking an Uber to the firm’s offices each day, and he bemoans the “piles of Dan Brown books” at the local Border’s, the only bookseller close to PIMCO’s offices. But he maintains another home in the bohemian Los Feliz neighborhood of Los Angeles, which he says has an interesting arts scene. And he frequently travels to PIMCO’s offices in New York, where his daughters also live.
As for his day job, Roman shares one more trait with the firm’s most famous founder: a single-minded focus on being the leading fixed income manager in the world. “For that, we need to have the best people and we need to have great performance,” he says. “And that’s a very simple mission statement. We’re not trying to be all things to all people; we’re not trying to be Walmart. We just have a very focused strategy. The way I think of PIMCO is, the single most important thing is the alpha we generate. We start with that — and we finish with that.”