El-Erian’s Next Act and Pimco’s Future

(Originally published here.)

Until the back story comes out, there’s going to be plenty of speculation about why Mohamed El-Erian plans to resign as chief executive officer and co-chief investment officer of the Pacific Investment Management Company. Pimco had a lousy year and his bonus was too small; he’s bored and wants to do something else; a personality clash; the inevitable desire to spend more time with his family. (I won’t pretend to know the reason, though it’s worth noting that one beneficiary is Andrew Balls, a former Financial Times journalist and the younger brother of Labour politician Ed Balls; he will become Pimco’s deputy chief investment officer, up from managing director in London.)

And since we’re in the business of speculation, here are a few thoughts on what El-Erian might wind up doing:

— Federal Reserve

Before he got into the money-management business, El-Erian was a staff economist at the International Monetary Fund. Over the course of a 15-year career he ended up working closely with the Fund’s No. 2 bureaucrat in the 1990s: Stanley Fischer, who was just nominated to be Federal Reserve Board vice chairman. (This is why El-Erian gave the lunch address at a recent conference the Fund held in Fischer’s honor.) It’s possible that Fischer is pushing to get his trusted deputy into the last open slot at the Fed, just as Janet Yellen, who will become Fed chairman next month, pushedthe White House to nominate Fischer.

A job at the Fed might be a natural fit for El-Erian. He clearly enjoys thinking about financial and economic policy, considering how many op-eds and books he has written on the subject. He would also fill a crucial void at the central bank, which now lacks top officials with significant market experience. (Having said that, it’s important to note that some of his predictions about the impact of Fed operations were incorrect.)

— Politics

El-Erian’s parents are Egyptian, and he grew up there. Since the start of the so-called Arab Spring, he has taken an interest in the country’s affairs. Presidential elections probably will occur later this year and El-Erian has already written opinion columns bemoaning the “lack of credible political leaders.” At one point in the summer of 2012, there even was speculation that El-Erian was being considered for prime minister.

Or if El-Erian wants to stay closer to Pimco’s base in Newport Beach, California, he could try to run for governor. That would be an uphill battle for anyone given the recent improvement in the state’s economy, but El-Erian would be in good company:Neel Kashkari, another Pimco alumnus, has already declared his candidacy as a Republican.

— Academia

More seriously, El-Erian has taught at Harvard Business School and regularly speaks at other universities. The academic life seems well-suited to someone who spends so much of his time writing thoughtful research notes and giving speeches. If Harvard doesn’t work out, he could try Duke, which has accepted tens of millions of dollars in donations from Bill Gross, El-Erian’s boss at Pimco.

El-Erian may choose none of these paths. He may want to focus on writing full-time, or maybe just retire somewhere where he doesn’t have to worry about monetary policy and capital flows.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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