AGENDA ITEM SUMMARY
1.
NAME OF ITEM:
Defined Contribution Plans – Fixed Income Active
Manager Selection
2.
INITIATED BY:
Karl W. Turner, Chair
3.
BOARD INFORMATION:
4.
BACKGROUND:
BOARD ACTION: X
Given the abrupt departure of the PIMCO Total Return’s lead fund manager, founder and
chief investment officer, Bill Gross, CAPTRUST recommends terminating the PIMCO
Total Return fund as an investment choice in the Defined Contribution Plan.
While PIMCO is a large investment management firm with over $2 trillion in assets across
a variety of asset classes and products, Bill Gross was a central investment process
component. Across many PIMCO strategies, the firm incorporates a global “top-down” or
macroeconomic viewpoint into their investment thinking, combining that with a “bottomup” or security- and sector-specific outlook, to drive portfolio decisions. Bill Gross had
been a consistent contributor to the macroeconomic viewpoint for years, and without
Gross’ skillset, PIMCO will need to adjust to missing a key input. PIMCO’s size
necessitates that it have several talented individuals involved in its investment process, but
Gross’ unique abilities, coupled with his cultural impact as a founder, make his resignation
significant.
Governance and division of labor is another key part of our due diligence process, and the
recent announcement leaves PIMCO with some leadership vacancies. PIMCO had taken
steps earlier this year to create a structure that involved promoting emerging leaders into
deputy chief investment officer roles, which we viewed as a constructive step in
succession planning. However, PIMCO has not developed “top down” expertise beyond
Bill Gross to a point where we feel comfortable recommending strategies that have been
reliant on Gross’ expertise.
CAPTRUST is recommending replacing PIMCO with the Prudential Total Return Bond
fund. The strategy is managed by Robert Tipp (2002), Michael Collins (2009), Richard
Piccirillo (2012), and Gregory Peters (2014). The team seeks to outperform through a
combination of sector rotation and security selection while minimizing interest rate bets in
the portfolio. The fund will invest primarily in U.S. dollar denominated investment grade
securities but may hold up to 30% in below investment grade debt or 30% in non-U.S.
dollar denominated debt. The portfolio managers utilize sector teams to develop a relative
value framework between sectors and aid in security selection. Diversification of alpha
sources, with the dual emphasis on security selection and sector rotation as value adds,
have allowed the fund to consistently outperform peers and the benchmark.
CAPTRUST is recommending mapping all existing PIMCO Total Return Fund assets, and
any future contributions to this Fund, to the Prudential Bond fund.
5.
TEXT OF PROPOSED RESOLUTION:
The Investment Committee approves the selection of the Prudential Total Return Bond
Fund, replacing the PIMCO Total Return Fund in the Defined Contribution Plan.
11/21/2014