1

Report on

PIMCO Pacific Investment Management Company

2

Principle of Banking & Insurance FIN-3337

Prepared for

Shakila Aziz

Course Instructor

United International University

Prepared by

Shahanaj Islam (111111028)

Tasmia Binte Rafiq (111 111 231)

S.M. Saifur Rahman (111 111 248)

Juthy Roy (111 111 019)

Section: C

Date of submission

United International University

3

January 7, 2014

Shakila Aziz

Assistant Professor,

Department of Business Administration,

School of Business & Economics,

United International University

Dear Madam:

Subject: Submission of assignment on Pacific Investment Management Company (PIMCO)

Here is the assignment that we assigned on the topic as per your request. The assignment has been completed by the knowledge that we have gathered from the internet.

We are thankful to all those persons who provided us important information and gave us valuable advices. We would be happy if you read the report and we will be trying to answer all

the questions that you have about the assignment.

We have tried our label best to complete this assignment meaningfully and correctly, as much as possible. We do believe that our tiresome effort will help you to get ahead with this sort of

venture. In this case it will be meaningful to us. However, if you need any assistance in interpreting this assignment please contact us.

Thanking you.

Yours obediently,

S.M. Saifur Rahman

On behalf of the group

4

Contents

Sl Topic Pg

No

1 Executive Summary 5

2 Overview of PIMCO 6

3 Global Offices 7

4 PIMCO Investment Strategy 9

5 History of PIMCO 11

6 How PIMCO Works 13

7 References 15

5

Executive Summary

Pacific Investment Management Company, LLC (commonly called PIMCO), is an American global investment firm headquartered in Newport Beach, California, in the United States, and

one of the largest active global fixed income investment managers in the world. As of September 30, 2013 it had $1.97 trillion in assets under management. It is the world’s largest bond investor.

PIMCO is a global investment management firm with over 2,000 dedicated professionals

focusing on a single mission: to manage risks and deliver returns for our clients. For four decades, PIMCO has managed the retirement and investment assets for a wide range of investors, including public and private pension and retirement plans, educational institutions, foundations,

endowments, corporations, financial advisors, individuals and others around the globe.

PIMCO is led by co-founder William H. Gross, (usually known as Bill Gross) who serves as Co-Chief Investment Officer, and Mohamed A. El-Erian, the other Co-CIO and the firm's CEO.

Gross manages the Total Return Fund, the world’s largest mutual fund with assets of $242.7 billion as of June 30, 2011. Its head of European operations is Andrew Balls, the brother of the British shadow chancellor Ed Balls.

The firm was founded in 1971, launching with $12 million of assets. Previously, PIMCO had functioned as a unit of Pacific Life Insurance Co., managing separate accounts for that insurer's clients. In 2000, PIMCO was acquired by Allianz SE, a large global financial services company

based in Germany, but the firm continues to operate as an autonomous subsidiary of Allianz.

PIMCO oversees investments on behalf of a wide range of clients, including millions of retirement savers, public and private pension plans, educational institutions, central banks,

foundations and endowments, among others.

6

Overview of PIMCO

PIMCO is a global investment solutions provider with more than 2,000 dedicated professionals

in 12 countries focused on a single mission: to manage risks and deliver returns for our clients.

PIMCO manage investments for a wide range of clients, including public and private pension and retirement plans and other assets on behalf of millions of people from all walks of life around the world and also advisors and asset managers to companies, central banks, educational

institutions, financial advisors, foundations and endowments.

PIMCO is a long-term investors and thought leaders. PIMCO’s time-tested investment process guides both cyclical (short-term) and secular (three- to five- year) macroeconomic views and combine those forecasts with in-depth research, security analysis and portfolio risk

management.

PIMCO focus intensely on providing superior service. From founding in 1971, PIMCO's team of investment professionals has been dedicated to client service, allowing portfolio managers to

focus on protecting client portfolios and delivering returns.

PIMCO attract talented and passionate people driven by standards of professional excellence, integrity, intellectual rigor and discipline.

PIMCO continue to evolve. Throughout our four decades we have been pioneers and continue

to evolve as a provider of investment solutions across all asset classes.

Firm Profile

Headquarters in Newport Beach, California

Founded in 1971

As of September 30, 2013

$1.97 trillion in assets under management*

$1.59 trillion in third party client assets

2,478 total employees

736 investment professionals

*Effective March 31, 2012, PIMCO began reporting the assets managed on behalf of its

parent’s affiliated companies as part of its assets under management.

7

Global Offices

1. Newport Beach

PIMCO

840 Newport Center Drive, Suite 100

Newport Beach, CA 92660

2. Amsterdam

PIMCO Europe Ltd

Amsterdam Branch

Schiphol Boulevard 315, 1118 BJ Tower A6

Schiphol, Netherlands

3. Hong Kong

PIMCO Asia Limited

24th Floor Units 2402, 2403 & 2405

Nine Queen’s Road Central

Hong Kong

4. London

PIMCO Europe Ltd

11 Baker Street London W1U 3AH

UK

5. Milan

PIMCO Europe Ltd - Milano branch

Sede legaleLargo Richini 6 20122 Milano

Italia

6. Munich

PIMCO Deutschland GmbH

PIMCO Europe Ltd, Seidlstr. 24-24a

80335 München Deutschland

7. New York

PIMCO

1633 Broadway

New York, NY 10019

8. Rio de Janeiro

PIMCO

Edifício Internacional Rio Praia do Flamengo, 154

1o andar Rio de Janeiro – RJ Brasil

8

9. Singapore

PIMCO Asia Pte. Ltd (Registration No. 199804652K)

501 Orchard Road #09-03, Singapore

238880

10. Sydney

PIMCO Australia Pty. Ltd Level 19, 363 George Street

Sydney, New South Wales 2000 Australia

11. Tokyo

Toranomon Towers Office 18F

4-1-28, Toranomon, Minato-ku Tokyo, Japan 105-0001

12. Toronto

PIMCO Canada Corp.

199 Bay Street, Suite 2050

Commerce Court Station

13. Zurich

PIMCO (Switzerland) LLC

Dreikoenigstrasse 31a 8002 Zurich Switzerland

9

PIMCO Investment Strategy

1. Cash and Short Duration

PIMCO's short duration strategies seek to provide liquidity, principal preservation and consistent income by investing in money market and other short maturity fixed income securities. These

strategies benefit from unique economic forecasting, close monitoring of the Federal Reserve and fixed income expertise.

2. Fixed Income Bonds offer investors the potential for regular income, preservation of capital, portfolio

diversification and a hedge against an economic slowdown. The range of issuers in the world's largest securities markets offers opportunities for a broad spectrum of investors.

3. Equity

Equity strategies offer the potential for attractive long-term returns relative to other asset classes as well as a high level of liquidity. While historically more volatile than investments in fixed

income, investments in stocks often serve as core holdings in balanced portfolios for many types of investors.

4. Real Assets

Strategies that employ real assets aim to have either an explicit or implicit return correlation to inflation. Real assets include inflation- linked bonds, commodities and real estate or some combination of those assets. This can potentially enhance portfolio diversification, mitigate

inflation risk and provide more stable real (after-inflation) returns.

5. Currency

Currency strategies can provide efficient and risk-aware portfolio diversification while targeting opportunities to exploit structural inefficiencies and valuation misalignments in global currency markets. They can offer exposure to select developed and developing economies where favorable

economic fundamentals indicate a potential for currency appreciation.

6. Alternatives

PIMCO offers opportunistic/distressed and hedge fund strategies that seek to deliver attractive risk adjusted returns across all market cycles, focusing on global macro, credit relative value,

volatility arbitrage and distressed mortgage and corporate credit opportunities.

10

7. Asset Allocation

PIMCO's asset allocation strategies employ our proven investment process to create portfolios positioned in key global risk factors within traditional and alternative asset classes. These

strategies seek attractive risk adjusted returns and true portfolio diversification utilizing dynamic multi asset and risk factor solutions. These approaches may also employ a tail risk hedging

program to help protect against systemic market shocks.

List All Investment Vehicles

Investors can access PIMCO solutions and strategies through an array of vehicles that meet their diverse guidelines and objectives.

1. Separate Accounts

2. Mutual Funds 3. Private Funds

4. ETFs 5. Collective Investment Trusts 6. Variable Insurance Trust

PIMCO Clients

PIMCO offers investment solutions tailored to specific types of investors, from individual and institutional investors to central banks to retirement plans covering millions of people around the

world, among others. Our dedicated teams of investment professionals with deep industry knowledge provide superior service and address the specific needs of our broad range of clients.

1. Retirement 2. Financial Institutions

3. Educational Institutions, Foundations and Not-for-Profit Organizations 4. Healthcare Organizations

5. Multiemployer Pension Plans 6. Consultants 7. Corporations

8. Public Pension Plans

11

History of PIMCO

In 1966 The story of PIMCO start with Bill Podlich’s first job as a credit analyst in private placements at Pacific Mutual downtown los Angeles.

In 1968 Ott Thompson relocates to Los Angeles to run the mortgage subsidiary of a large bank;

in several years he would be hired to replace Walter Gerken as president of PIMCO.

In 1971 PIMCO is officially incorporated with founding “troika” Bill Gross, Bill Podich and Jim Muzzy in place. PIMCO introduces a revolutionary concept to investment world: actively managed bond portfolios.

In1972 PIMCO moves from Los Angeles to Newport Beach, California, with parent company Pacific Mutual Life Insurance. After several years PIMCO moves out the Pacific Mutual building and into new space next door in order to foster the firm’s independent and

entrepreneurial spirit.

In 1973 PIMCO pioneered the three-legged stol management style Portfolio Management, Client Servicing and Business Administration and emphasizes lean and efficient operations, a flat

management structure and no corner offices. Advisor Peter F Drucker is on of the drivers behind the philosophy.

The Beach heads east as PIMCO lands its first Fortune 100 client. One of the largest and wealthiest companies hires PIMCO in 1977 to manage part of its fixed income portfolio- the first

time they hire a specialist investment manager. This important win solidifiels PIMCO’s credibility and opens doors at other major corporations.

In 1980 after almost a full decade in business, PIMCO is primarily run by its three founder Bill

Podlich , Bill Gross and Jim Muzzy termed the “hot hands” in bond management.

In the early 1980s, at the onset of a tremendous bull market in bonds, PIMCO formally becomes an independent operating company.

“Today’s economy and financial markets are making an extended visit to the dentist’s office,”

writes Bill Gross in September 1981 in his first investment outlook. This widely read monthly publication becomes a highly influential and sometimes market moving commentary on economics and investing.

PIMCO officially adopts secular view that is a long term three to five year outlook to help a

consistent vision for its investment strategy. The first few secular annual forums are informal

12

discussion among PIMCO investment professionals, and in 1982, the firm formalize the structure, introducing briefing books and outside experts.

In 1986 PIMCO begins managing StocksPLUS portable alpha strategies (equity index futures

paired with bond portfolios), capitalizing on the firm’s strength in active bond management and efficient equity futures management.

In 1987 PIMCO begins managing global fixed income and currency investments, offering

investors exposure to a broad and diverse set of international opportunities and introduces a mutual fund based Total Return strategy in 1987, the first in its suite of mutual funds.

Bill Thompson, formerly the chairman of Salmon Brothers Asia, becomes PIMCOS’s new CEO

in 1993 only the second CEO in the firm’s history.

In 1994 through a reverse merger of its holding company, PIMCO becomes part of a publicly traded limited partnership (PIMCO Advisors LP) traded under the NYSE symbol PA.

PIMCO expands into Asia-Pacific with the Singapore office first, which opens in 1996 and

expands into Europe with the London office first, which opens in 1997. In the same year PIMCO becomes one of the first investment managers to embrace Treasury Inflation-Protected Securities, and in the same year the firm begins to manage emerging markets bonds and

municipal bonds, vastly expanding the range of asset classes and strategies on offer.

The marriage between German insurer Allianz and PIMCO in 2000 creates the world’s sixths-largest investment management group. This positions PIMCO significantly expands its Europe

and global market presence, while continue to operate independently.

In 2003 PIMCO introduces REIT investment management strategies, offerings efficient exposure to the commercial real estate markets.

In 2006 PIMCO’s mission to preserve and grow client asset while providing industry-lending service earns the trust of over half of the largest companies in America.

In 2010 PIMCO’s expansion into actively managed equity strategies continues the firm’s evolution aimed at the helping clients meet their investment objectives across all asset classes and risk exposures.

.

13

How PIMCO Works

Firstly, does Bill Gross pay himself, or is he “paid by the parent company that bought his firm”?

We haven’t seen a lot of reporting on this, but everything we know about PIMCO that it’s a very arm’s-length, largely independent unit of Allianz. It certainly dividends profits up to its parent,

but we don’t actually believe nor have ever seen it reported that Allianz executives make granular decisions on how much Bill Gross, or any other PIMCO employee, gets paid on a year-to-year basis.

Is there a formula governing Gross’s remuneration, based on some combination of PIMCO

revenues, PIMCO profits, and the performance of the funds he manages? We are sure there is. And if you want to reverse-engineer a way for Gross to have been paid $200 million in 2011

despite massively underperforming that year, then that’s surely the way to get there. PIMCO doesn’t want to encourage short-term gambling among its employees, and so its pay is based on long-term performance rather than year-to-year fluctuations; Gross’s long-term performance

remains excellent, and he manages an astonishing amount of money. And on top of that, PIMCO is attracting spectacular inflows these days.

Still, PIMCO told that the numbers in the original NYT article were “seriously inaccurate”, and I

quite sure that Gross, given his position in the company, does have a certain amount of discretion when it comes to divvying up the remuneration pool. He might not “have to answer to congress

or a goofball parade of Occupy Wall Streeters”, but he’s still a leader and even if we don’t know for sure how much he got paid, a lot of big-time money managers in the company know exactly what example he is setting. If they would risk getting fired after turning in such dismal

performance, then it would be downright hypocritical and bad for the cohesion of the senior management team were Gross to accept a $200 million paycheck in such a bad year.

And how about the people whose money PIMCO is managing? Yes, it’s easy to say that they’re

sophisticated investors who “pay an agreed upon and transparent management fee up front” but that doesn’t mean they’re happy with the fees they’re paying, especially not if they start reading about $200 million paychecks. And in a world moving swiftly away from the fund model and

toward the lower-fee ETF model, it behooves any long-only money manager to keep a very close eye on fees and costs. The level of money-skimming which maximizes your payday this year is

not necessarily the best way to keep on building your company’s franchise over the long term, especially in a world where index investing is becoming increasingly popular.

As for the assertion that long-only “buy siders that actually run portfolios north of 200 billion are paid at this level” well, name some names. It’s a very short list, of course. But if you can find

one or two other people who were paid $200 million a year for managing funds, and who weren’t hedge-fund managers collecting 2-and-20, then I’d be much more likely to believe that Gross is

paid that much, too.

Next comes up a question about Mohamed El-Erian’s tenure at Harvard Management Company. We quoted an article about how “Mohamed was having a heart attack” while he was there,

14

because Larry Summers insisted on taking Harvard’s spare cash and investing it in an endowment which was designed to have a virtually infinite time horizon. As a result, El-Erian’s

job when it came to liquidity management was made extremely difficult. But now we told “this isn’t true”, on the grounds that all El-Erian needed to do was “explain” to Summers and others

“that their allocation was inappropriate”, and then sleep well at night since the “allocation was made by Harvard officials not by Harvard Management.”

Maybe anonymous Wall Street trolls think that way, and wouldn’t worry about Harvard’s liquidity needs even if Harvard was effectively using them as a checking account. But a

responsible money manager worries about liquidity every day, especially in a situation where Harvard can and will ask for large sums of cash on a regular basis. In any case, our larger point

was that El-Erian can’t be blamed for liquidity problems after he left HMC, and there doesn’t seem to be any disagreement on that front.

Then there’s the question of the degree to which El-Erian’s ubiquity in the media is a PIMCO

marketing strategy, responsible for the large increase in assets that PIMCO is seeing these days. We knew that the answer is a simple yes but if that’s the case that has interesting implications. A large chunk of Fabrikant’s article was based on the premise that PIMCO’s investors wanted

Gross’s bond-trading expertise, rather than El-Erian’s technocratic global-macro insights. But if indeed El-Erian’s regular TV appearances and various op-eds are responsible for the hundreds of

billions of dollars which continue to flow into PIMCO, then it seems that there’s a lot of appetite out there for a macro-led, rather than a trading-led, strategy.

On top of that, it’s notable that Gross, the great bond trader, has started to underperform PIMCO as a whole, where investments are based very much on the global macroeconomic outlook.

PIMCO’s more than big enough for both Gross and El-Erian, of course. But the idea, in Fabrikant’s piece, that PIMCO is effectively still Gross’s shop, and risks withering away were he

ever to leave that idea is pretty effectively demolished if in fact El-Erian’s media strategy is responsible for bringing in enormous amounts of new money. Certainly El-Erian never talks about trading strategies in such appearances.

Finally, there’s the question of Blackrock, a much bigger fund manager than PIMCO, where,

incidentally, the CEO, Larry Fink, was paid $21 million in 2011. How did Blackrock grow so big? In large part by buying a lot of index funds, thereby diversifying into one of the fastest-

growing investment strategies in the world. And also, in part, by being a public company. And so there is a question, and an answer:

In order for PIMCO to effectively compete with Blackrock, will it too have to go public?

No. How that is even a question? They are a wholly owned subsidiary of a firm that is

significantly larger than Blackrock which allows them tremendously cheap financing if they need it. Allianz’s insurance assets also provide them with 23% of their AUM. Does JP Morgan Asset Management, SSgA, or Deutsche Bank Asset Management (all well over a trillion in AUM) need

to spin off and IPO to compete with Blackrock?

15

It wasn’t suggesting that PIMCO spin off from Allianz. But PIMCO already has “shadow equity” which is traded among PIMCO employees; there’s no reason that it couldn’t get listed as

some kind of tracking stock. And that tracking stock could be a very valuable acquisition currency as PIMCO seeks to diversify away from its historical core competence of actively-

managed bond funds. There are many reasons why PIMCO might well prefer to do things that way, rather than asking Allianz for “tremendously cheap financing” for an acquisition.

It is sure that PIMCO gets lots of value from having Allianz assets at its core. But PIMCO is also reported to be “seeking more independence from its parent”, and in any case we don’t think it’s

true that PIMCO is wholly owned by Allianz, which bought only 70% of the company back in 1999.

My point about Blackrock is that by having its own stock and being master of its own strategy, it

has managed to diversify, and grow, more quickly and effectively than PIMCO has. Here’s a germane quote:

“The history of the asset-management business demonstrates time and time again that the most

successful asset-management firms are those who are dedicated to investing rather than subsidiaries of banks and insurance companies where there can be lots of tension,” Burton Greenwald, a fund-consultant based in Philadelphia, said in an interview. “Fund companies tend

to be entrepreneurial, while banks and insurance companies tend to be bureaucratic.”

There’s a case to be made that PIMCO has in fact thrived under Allianz’s ownership but it’s unclear whether that’s a function of Allianz being a great owner, or whether it’s a function of the

fact that those years saw the greatest fixed-income bull market of all time. That bull market is going to come to an end at some point. And when it does, PIMCO wants to be positioned much more evenly across various different asset classes and strategies than it is now.

THE END

References:

en.wikipedia.org

www.nytimes.com

www.pimco.com

blogs.reuters.com

www.pimcoetfs.com