Understanding Investing

Reading the Road Ahead: Behind the Scenes at PIMCO’s Economic Forums

Before Economic Forums were mainstream on Wall Street, our investment professionals were gathering to identify economic and market trends for our clients. Decades later, the cornerstone of our process is stronger and more important than ever.

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Images on screen: PIMCO’s cyclical forum and trade floor

Dan Ivascyn: We held the first economic forum back in the late 1970s. Today they still serve the same purpose, they are a way for us to step back and to think about the trends that could impact economies and markets for months and years to come. They ultimately help us read the road ahead.

Tiffany Wilding: We're always thinking about the next forum. What are the topics? What should we focus on? What are the market themes?

Dan Ivascyn: Goal of the forums is to gain a better understanding of key economic themes that are going to impact financial markets.

Tiffany Wilding: Take a step back from maybe day-to-day market moves, which can obviously can increase emotions, and to just think about where we are in the cycle.

Lupin Rahman: Means that we're able to take those conditions and apply them to the assumptions that we're making for each country's bottom up macro outlook. That very structured global view is incredibly important in determining how we position ourselves.

Steve Rodosky: And so we do three cyclical forums and one secular forum each year.

Tiffany Wilding: The cyclical outlook is something like 12 months to 18 months, whereas, a secular outlook is something like five years.

Steve Rodosky: The whole thing is a story with a beginning, a middle, and an end. And the ending is what that portfolio looks like.

Lupin Rahman: PIMCO's focus on listening to diverse opinions and really thinking outside the box is really, really unique.

Tiffany Wilding: About a month before we ask all of the regional committees and economist actually come up with their forecasts for GDP, for inflation, for the unemployment rate, for their particular regions, for monetary policy, for fiscal policy. Assign people to lead each session within the forum after kind of devising that agenda.

Stephen Chang: We have to really tune up on our intellectual fitness to be ready for the debate and the internal sparring of ideas.

Steve Rodosky: Second guess everything going into a debate and don't start off with a full set of assumptions.

Dan Ivascyn: It's an attempt to combat group think, elevating contrarian views, challenging our current thinking. And it allows us to solicit feedback from a wider range of individuals. People that are outside the day-to-day investment decision making process that could have a unique perspective.

Christian Stracke: Back in 2016, before the election, we were having a pretty intense debate with Ben Bernanke. It was an extraordinary debate, and it was a great example of how at PIMCO, there's nothing sacred. The level of debate, the level of discourse, the intensity of the debate.

Steve Rodosky: It's a very non-hierarchical process, so it's common to have a vice-president disagreeing with a managing director, and that keeps things exciting. One of the key characteristics of our forum process is inviting every year's MBA class. It's an opportunity for them to show the rigor and substance of what they've spent their time learning on over that first year.

Dan Ivascyn: It does force us to look at alternate scenarios in a thoughtful and structured manner.

Steve Rodosky: Try and point out something that was either looked over or not enough time was spent on it that it might come back to haunt us. Find the Lego in the carpet before you step on it.

Dan Ivascyn: There have been certainly instances where we've discussed key trends that have driven returns. Probably the best example, related to the housing market, in the years leading up to the global financial crisis, with a focus on aggressive underwriting and a lot of froth in the US, that’s an example where we began to uncover these key themes and trends back in 2004. Because we played great defense on behalf of clients, we are able to go offense on their behalf in the many years to come.

Tiffany Wilding: It allows us to think about where markets are going, where the economies are going, but it also allows us to think about risks. And in terms of portfolio management, it's all about managing the risks. Those are the kinds of things that help clients, active management instead of passive. And we think year after year, that's providing our clients value.

Christian Stracke: Frankly, I'm not really sure how you can operate without this kind of a common baseline. Some of our competitors, are not integrated the way that we are. And what you might end up with is kind of a hodgepodge of different economic views, maybe explicit, but often implicitly baked into a lot of positions.

Ivascyn: And then after the forums, the portfolio management group in particular gets together for several days.

Christian: The high level discussion of economics is critically important, but what's most important is then translating those views into, what are we going to do with our client's assets? How are we going to position our client's portfolios?

Steve Rodosky: The content that we deliver stretches far beyond just the fixed income corner.

Lupin Rahman: What has always struck me is that, regardless of which country I'm in, they will always ask me about PIMCO's views on the treasury market, our global macro views, how is PIMCO thinking about current market conditions and the state of the financial markets. Not only our clients, but essentially a large part of our counterparties really value what PIMCO thinks.

Christian: We have a bit of an edge in economic thinking.

Steve Rodosky: Customers should find confidence in the fact that we're constantly trying to make ourselves a better firm.

Ivascyn: It's, again, a key part of what we are as a firm. And for that reason, we're going to continue to not only conduct forums, but embrace that key element of our overall process in the firm culture.

Disclosure


All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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CMR2022-1202-2621186

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