How Pimco Won the Global Financial Crisis

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When the global economy cracked and nearly collapsed in 2008, one of the biggest winners was asset manager Pimco and its larger-than-life chief Bill Gross.

  • It’s one of the subplots in Mary Childs’ living story about the bond manager and his empire,”The king of bonds“, out next week.

From 2006, Pimco executives saw the problems emerge in subprime lending and the housing price bubble – and positioned their portfolio accordingly. But things got really interesting when the bubble started to burst.

What happened: During 2008, its executives argued in television appearances and elsewhere that the Treasury would need to guarantee the debt of Fannie Mae and Freddie Mac.

  • It is no coincidence that Gross had placed 60% of his signature fund in these securities. In September 2008, the Treasury did what the Pimco team had advocated.
  • Following the bankruptcy of Lehman Brothers in September 2008, Pimco drew a line between assets that were inside the “umbrella” of federal support, including the big banks, and those that were not. It redeemed the debt of the former and avoided that of the latter.

Then, When the federal government went to implement its bank bailout program, Pimco was one of the few companies with the manpower and know-how to carry it out. So the government hired Pimco to administer the programs.

The bottom line: “Everything the government touched turned to gold,” Childs writes. “So whenever Pimco got visibility on what the government might need to buy, it could easily capture the gap between non-gold and gold.”

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