Q&A: PIMCO’s New Product Development Head To Expand Alternatives Platform

Oct 17 2011 | 11:18am ET

Jennifer Bridwell was recently tapped as head of alternatives product development at the $1.3 trillion, California-based asset manager Pacific Management Co. Bridwell, who has been with PIMCO since 2005, already heads mortgage strategies and will continue in that role. In addition, however, she’ll be looking at ways of expanding an alternatives platform that already manages about $16 billion, including several hedge funds and private equity or distressed strategies.

FINalternatives’ Senior Reporter Mary Campbell was recently in touch with Bridwell to discuss the challenges she faces in her new post.

What is the thinking behind PIMCO’s decision to expand its (already sizeable) alternative assets business?

As is evident in financial markets over the last three years, we are in the midst of a global deleveraging and re-regulation process. PIMCO believes this will continue for the foreseeable future. Inherent in periods of dislocation are new investment opportunities, and we believe this period is no different. As investors and markets digest a wide range of regulatory reform, we believe there will be more opportunities to earn above normal returns with private capital. Sometimes these opportunities may be too illiquid or in other ways inappropriate to house within liquid, high-quality vehicles. Sometimes the opportunities may be very liquid relative-value trades. These are the types of investments that PIMCO expects to remain abundant during the deleveraging and re-regulation period we see ahead.

Will the firm be considering any strategies it has not offered clients before?

We certainly believe that the current market environment will continue to create displacements and opportunities for PIMCO to apply its asset level expertise and global reach to develop new alternatives strategies for our clients.  But our primary focus currently is on investing the capital that our clients and partners have entrusted us with.

Are there any regions or sectors PIMCO is particularly interested in at the moment?

From an opportunistic standpoint, the U.S. residential and commercial mortgage markets continue to present opportunities due to their size, regulatory uncertainty and housing weakness. Also, the issues surrounding sovereign debt and financial institution balance sheets in Europe have the potential to create attractive investments for some time.

From a liquid markets standpoint, the continued deleveraging in the global financial sector should produce a steady supply of highly motivated sellers of risk assets for non-economic reasons, creating temporary pricing anomalies from a bottom-up perspective. From a macroeconomic perspective, the distortions created by policymakers globally as they try to curb inflation and control capital flows in the developing world, while trying to address large debt overhangs and spur aggregate demand in the developed world, should create opportunities in the currency and interest rate markets.

Institutional investors are driving growth in the hedge fund space, what do you think is necessary to attract (and retain) these investors?

Our clients are looking for an investment manager who can deliver reasonable absolute returns that are uncorrelated to other exposures in their portfolios. They want strategies that can be diligenced by their investment committees, boards and other constituents, but which do not behave similarly to existing investments allocations. Institutional hedge fund clients value exceptional operational and portfolio risk management, and want investment strategies communicated to them in a transparent, frequent and clear manner by knowledgeable investment professionals.

Markets have been very volatile recently—what factors concern you most about the current global economic situation?

Over the next 12 to 18 months, we expect the global economy to expand at a very modest real rate of 1% to 1.5%. Global imbalances have continued to rise in the post financial crisis environment, global leaders continue to fail in their policy coordination efforts, and deleveraging and re-regulation continue to be critical over the course of our cyclical horizon. We are transitioning into a world where we believe the incentives of policymakers and the divisiveness of politics will become the predominant drivers of investment returns and economics.

What do you see as the greatest challenge facing you as you take up this new post?

For starters, it is important to remember that PIMCO has a long history of successfully investing in alternative investments and a significant number of professionals at the firm contribute to our sizeable and successful alternatives investment platform. We are focused on continuing to identify appropriate opportunities for PIMCO to harness our market position and expertise to benefit clients who are looking to make prudent allocations in the alternatives space.

The primary focus at PIMCO has always been and continues to be performance. This is job #1 for everyone involved.

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