Mohamed El-Erian is moving
back to Newport
Beach. Here’s my take on the news.
- This has got to be a serious blow to Harvard, where his work of rebuilding
the management team in the wake of Jack Meyer’s departure is only, by his
own admission, part done. ("HMC is still in a transition phase,"
he wrote in his John
Harvard letter three weeks ago.)
- Given that El-Erian was clearly making a long-term commitment when he moved
to Boston, does this prove that that Harvard is genuinely bad at retaining
talent?
- Or is El-Erian just fickle? His tenure at Harvard was short, but not as
short as his tenure at Salomon Smith Barney. And he allowed himself to be
nominated to be managing director of the IMF in 2004, as well.
- So, what were the real drivers of this move? El-Erian emphasizes wanting
to be closer to his family in California, which has a certain amount of plausibility
to it if only because he already took a pay cut to move to Harvard, which
makes it less likely to be about the money.
- On the other hand, it could still be about the money and the power. The
$40 billion that El-Erian was running at Harvard is a huge sum, to be sure,
but it’s dwarfed by Pimco’s $700 billion. When he left Pimco, El-Erian was
just one of a number of managing directors all jostling for position as Bill
Gross’s heir apparent. Now, he’s being parachuted in as co-CEO and co-CIO,
making him if anything senior to Gross, since he will have official managerial
clout.
- In terms of El-Erian’s Pimco career, then, leaving the company seems to
have been the best thing he could have done: I doubt very much he would have
been granted this position had he stayed. And I’m sure that his new job comes
with extremely generous remuneration: El-Erian is now on his way
to becoming dynastically wealthy.
- What’s more, the international travel which took its toll on El-Erian when
he was at Pimco the first time round won’t be an issue now that he’s definitively
graduated from the emerging-markets universe and will be running everything.
- On the other hand, El-Erian’s new job is definitely more constrained than
the one he’s leaving. He has to share his CIO title with Bill Gross, and share
his CEO title with Bill Thompson. He also has to confine his investments to
the narrow world of fixed income, rather than being able to invest in any
asset class at all.
- And does anybody really believe in what Thompson is calling "a powerful
and experienced leadership triangle" as an efficient way of running anything?
Bill Gross is the billionaire founder of the company and I’m sure retains
a de facto veto over all major decisions there, which means that
there are essentially three people running the company at once. This is not
exactly a time-tested recipe for success, no matter how friendly and collegial
the three men are.
This decision by El-Erian, then, is likely to cause no little upheaval at both
HMC and Pimco. Personally, I’m sad that we won’t be able to find out how El-Erian’s
HMC performed over the long term, which was something I had much interest in.
Pimco, by contrast, is enough of a supertanker that El-Erian’s influence there
will be almost impossible to ascertain. But I’m sure that Bill Gross, for one,
is very happy to have his old lieutenant back on the west coast.