THE sun hasn't yet lit up the California sky when Daniel Ivascyn and Emmanuel "Manny" Roman join each other at side-by-side desks on the 20th-floor trading room of Pacific Investment Management Co (Pimco).
From their aerie overlooking a luxury shopping mall in tony Newport Beach, the pair brace for another grinding day in the market. Together, they are in charge of the US$1.77 trillion fixed-income colossus built by Bill Gross, the vaunted "Bond King". But things are different since Mr Gross decamped four years ago, pushed out in an awkward coup. For one thing, the era of one-man rule is over, replaced with a partnership whose approach is far less monarchical.
Teamwork is the new way at Pimco, and that's evident right at the top. Whereas Mr Gross once ran the show, Mr Ivascyn and Mr Roman embrace their shared responsibilities. Mr Ivascyn is head of investing while Mr Roman, as chief executive officer, runs operations. They each do different jobs, yet they somehow manage to do their different jobs together as one. And the message they signal by their proximity on the trading floor, like roped-together mountain climbers, is the importance of mutual respect and co-dependence.
"It's a shift in mindset," says Mr Ivascyn, 48, during a rare joint interview with Mr Roman. He's not just speaking about the seating arrangement. In his French-accented English, Mr Roman, 54, chimes in: "I don't think there's a single important decision we don't make together."
Mr Ivascyn hails from Boston, still roots for the Red Sox, and has a fondness for the Polish sausages his grandmother used to make. He's best known over the last decade for co-managing the US$112 billion Pimco Income Fund. (The world's largest actively run bond fund has outperformed 98 per cent of its peers for the past five years.)
He arrives every morning in his Tesla Model S after a six-mile ride from his 13,000-square-foot hillside mansion, then assumes the seat in the corner of the L-shaped trading floor he's occupied since Pimco moved into this tower four years ago.
Mr Roman, a native Parisian, never learned to drive. So for the last two years since joining the company, he's been Ubering to the office from his oceanfront house with floor-to-ceiling windows perched on the rocky cliffs of Laguna Beach. While he's primarily responsible for managing operations, Mr Roman, often in a Hugo Boss cardigan and stylish slim black tie, begins the day by immersing himself in the markets, just like Mr Ivascyn, whose style veers more toward button-down Oxford shirts, no tie, and rolled-up sleeves.
It's tempting to see the two men as a clichéd odd couple. But their collaboration is more complicated. "Manny's a real businessman," says Scott Simon, a retired Pimco portfolio manager who sees both Mr Roman and Mr Ivascyn socially. "Dan is a great investor. Put the two together, and it works incredibly well."
Something is clearly clicking. About 85 per cent of Pimco's funds have a three-year record beating their benchmarks. Mr Ivascyn's Pimco Income Fund attracted about US$36 billion in new assets since the start of 2017 through April.
Its international counterpart, the Pimco GIS Income Fund, reeled in more than US$48 billion over the period. The firm's total assets have increased by US$300 billion, growing each of the five quarters since Mr Roman joined in November 2016 from London-based Man Group plc.
"It's great to have a good year like we did in 2017, but the reality is it was a low-degree-of-difficulty year," says Mr Ivascyn. Those kinds of numbers may be hard to keep going now that interest rates are rising and bond prices falling, but Mr Ivascyn and Mr Roman vow they're up to the task. "Our clients," Mr Ivascyn says, "rely on us as active managers to navigate difficult periods on their behalf."
Mr Ivascyn and Mr Roman are writing the latest chapter in one of the great sagas of the fixed-income industry. What started out in 1971 as a unit of Pacific Mutual Life Insurance Co grew into a powerhouse using an investing strategy pioneered by Mr Gross: make money from both bond-interest payments and active bond trading. In 1987, Mr Gross launched the Pimco Total Return Fund, offering retail investors a mutual fund that delivered near-equity-like results during rising stock markets as well as the downside protection of bonds when stocks fall.
By the 1990s he became a celebrity money manager, mentioned in the same breath as Warren Buffett and Peter Lynch. In 2010, Morningstar Inc named him fixed-income manager of the decade, declaring: "No other fund manager made more money for people than Bill Gross."
But soon all was not well at Pimco. Many of the talented money managers lured there by Mr Gross's prominence bristled at his sometimes imperious temperament. Mr Gross, in turn, tried to oust those he suspected of disloyalty. When executives at Pimco and its parent, Allianz SE, threatened to fire him for his workplace conduct, he quit, leaving a handwritten note of resignation dated Sept 26, 2014, at 6:29am, one minute before the New York markets opened.
Pimco's executive leadership elected Mr Ivascyn as CIO the day Mr Gross quit, a sudden exit that prompted investors to pull more than US$350 billion. Even as Mr Ivascyn proceeded to preside over market-beating returns, he and other Pimco executives decided they needed an infusion of talent to refresh the firm's marketing, products, and client relations. In 2016 they turned to Mr Roman.
"Someone says you can go and play for the Red Sox or the Yankees," Mr Roman says. "You get that phone call once in your life if you're lucky, and you want to know if you're good enough."
Mr Roman made his name ramping up Man Group, the world's largest publicly traded hedge fund firm. He executed a series of acquisitions at Man while also embracing new technology, data gathering, and quantitative analysis. At Pimco, Mr Roman's focus has shifted to luring top tech and finance talent to give the bond trading giant a new edge.
In February, Pimco hired Dirk Manelski as chief technology officer from JPMorgan Chase & Co. It put Keami Lewis, a human resources professional formerly with the New York Times newsroom and Facebook Inc, in charge of talent and organisational development in March. And in April it announced four new portfolio managers in quantitative equities, agricultural commodities, high yield, and Asian fixed income. The number of investment professionals has climbed to more than 725 from about 650 when Mr Roman started. The Pimco website listed more than 130 job openings on May 1.
Perhaps the most striking sign of Pimco's push - and Mr Roman's role in it - is the decision to open a new office in Austin later this year. About half of the 200 people there will be tech specialists, according to Mr Roman, with others in marketing, wealth management, and operations. "It's difficult to recruit tech people in New York and Newport," he says.
Mr Roman knows what it's like to pick up and move. Pimco's sunny California-bred ambiance is far from the mostly slate-coloured skies of his youth in Paris. An only child to artist parents, Mr Roman grew up in an apartment with books lining the walls. His father's paintings, he says, were influenced by Freudian psychoanalysis as well as the style of Balthus. Dinner conversations veered toward the austere and intellectual.
There was no TV. But there was a little white Grundig radio. Mr Roman would listen to it for hours, tuning in to sportscasts of his beloved football club, Association Sportive de Saint-Etienne Loire. "Football," he says, "was a way for me to escape."
It wasn't his last escape. After earning a bachelor's degree from the Université Paris-Dauphine, Mr Roman moved across the Atlantic to earn an MBA from the University of Chicago, then landed a job at Goldman Sachs Group Inc. Mr Roman spent 18 years with Goldman, rising to co-head of the European equities division. In 2005 he jumped to GLG Partners Inc as co-CEO of the New York-based hedge fund group. Five years later, Man Group bought GLG for US$1.6 billion.
But a few years later, many investors bailed after a stretch of management missteps and mounting losses, leading to the ouster of its CEO in 2012. Mr Roman got the job, and his first move was to write down almost half the value of the GLG purchase. Inflows resumed at Man, and the stock more than doubled in price during Mr Roman's first two years.
One of Mr Roman's first tasks as CEO was settling a lawsuit Mr Gross filed in 2015, claiming wrongful termination. Mr Gross, who took home about US$300 million in 2013, accused Mr Ivascyn of leading a "cabal" of executives who plotted his ouster so they could take a bigger share of the company's bonus pool and boost revenue by pushing high-fee products on clients. Pimco denied the allegations.
Mr Roman knew the company needed to move swiftly to put this dispute behind it. In March of last year he agreed to a payment of US$81 million, which Mr Gross pledged to give to charity. The company also dedicated a founders room at corporate headquarters to Mr Gross and other leading Pimco lights from the past.
Mr Ivascyn says he has nothing but respect for Mr Gross's investments at Pimco. There's less to admire in Mr Gross's performance at the US$2.2 billion Janus Global Unconstrained Bond Fund, which he took over after leaving Pimco in 2014. In April, Mr Ivascyn sent an email to Mr Gross that included a mention of the fund's lacklustre results, saying Mr Gross may be handicapped without Pimco experts to rely upon. "Your recent performance was not as good," Mr Ivascyn wrote in the email. "Your long-term performance was exceptional, no question about it. Would guess it is harder without the strong team behind you."
The message from Mr Ivascyn infuriated Mr Gross, whose lawsuit said Mr Ivascyn was "foremost" among the group who sought his ouster from Pimco "for their own personal financial benefit and egos".
Others who've worked with Mr Ivascyn paint a more favourable picture. "Dan's an easy guy to work with," says Doug Hodge, Pimco's CEO before Mr Roman. "He's super humble," Mr Roman says.
If Mr Roman's job is to find tech talent, Mr Ivascyn's is to put it to use to enhance investing performance. Think of it as the investing world's equivalent of automobile technology. Pimco isn't trying to build the financial equivalent of a self-driving car. Instead, the firm is using technology to help portfolio managers avoid costly accidents and make more money than the other guy. Risk managers already are refining analytics tools to integrate themselves more deeply into portfolio teams. The goal is to use technology to recognise tendencies of individual money managers who may hold losers too long or sell winners too soon, Mr Ivascyn says.
A big-data and artificial intelligence project headed by Mihir Worah is mining Pimco's internal records dating to its inception to track pricing, size, and the timing of each trade. Pimco is already using the research to identify patterns that affect returns, such as rising defaults or pre-payments in mortgage-backed securities. "It's all about getting an edge on forecasting," Mr Ivascyn explains.
The son of a school superintendent and a nurse, Mr Ivascyn remains loyal to not just his Boston sports teams but also to his hometown cuisine. Mr Ivascyn headed west to attend Occidental College in Los Angeles, followed by an MBA at the University of Chicago, then stints at Fidelity Investments, T Rowe Price, and Bear Stearns & Cos, where he became a mortgage specialist. Mr Ivascyn moved to Pimco in 1998 as a portfolio manager of mortgage- and asset-backed securities. He was almost let go two years later in a wave of job cuts that followed the firm's sale to Allianz. Mr Simon intervened, telling their boss that he wouldn't let him get rid of Mr Ivascyn. "He worked his butt off," Mr Simon says. "He was supersmart. Pretty much everything he said was smart or right."
Mr Ivascyn, along with Mr Simon and Jenn Bridwell, led the expansion of Pimco's private funds, which include hedge funds, distressed credit, and private equity-like corporate investments with more than US$30 billion of assets. Mr Ivascyn began the Income Fund in 2007, which has consistently wed benchmark-beating returns to low volatility, a performance attributed to a shrewd mix of mortgages, Treasury bonds, currencies, credits, swaps, and other derivatives.
Pimco's investing division kept its footing after Mr Gross left, but Mr Ivascyn and others there saw the need for new leadership on the firm's business side. What's more, Mr Hodge was feeling ready for a change after all the drama and stress surrounding Gross's departure. When a search committee proposed to Mr Roman that he interview for the Pimco CEO job, what he knew about the firm came mainly from news reports of its remarkable investing record and Mr Gross's acrimonious ouster.
Mr Roman had never set foot in Newport Beach until he flew out in May 2016 and met Mr Ivascyn at the Balboa Bay Club, a local landmark Looking back to that day at the Balboa Bay Club, Mr Roman says: "We have this view, both of us, that markets are mostly efficient, so it's hard to make money. We both thought that if you wanted to run a top-rated organisation, you need to find a way to make intelligent decisions."
Something else they concurred on was that Pimco should build on its core competency, bond management. And winning: they agreed on that, too. Glancing at Mr Ivascyn during their joint interview with Bloomberg, Mr Roman says: "We agreed on one thing right away. And that was that we're going to be the best in fixed income and we're not going to try to be all things to all people." BLOOMBERG
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