El-Erian Seriously Gets ‘It’

Ashby Monk

Mohamed El-Erian is the CEO and co-CIO of PIMCO. In case you haven’t heard of PIMCO, it’s an outfit with just over $1 trillion in assets under management, 1200 employees and (why not) the world’s largest mutual fund (which, by the way, is worth over $200 billion on its own). In other words, El-Erian is a big-shot. Think of it this way: he’s in charge of a financial entity bigger than any SWF in the world. So when he talks, we should listen. And, significantly, he appears to be doing some talking.

El-Erian has a fantastic article in the IMF’s Finance & Development entitled, “Sovereign Wealth Funds in the New Normal.” Why so fantastic? Because he pretty much says in 2000 words what I’ve been saying — or at least trying to say — on this blog for the past two years. Here’s a taste:

“Success requires continuous improvement in the institutional responsiveness of sovereign wealth funds to challenges in the areas of governance, investment processes, and communication…Such improvements are not easy to deliver. They may take some sovereign wealth funds out of their operational comfort zone, and they involve risk. Yet, given the scale of ongoing and prospective changes in the global economy, the alternative of backward-looking business as usual would be even riskier.”

Amen. And here are some more heart-warming specifics:

“Governance structures will be called on to respond to a combination of cyclical and secular changes…”

So trueso true. And:

“Communication is increasingly recognized as vital to ensuring public buy-in — in both good times and bad … This requires a higher degree of disclosure than has traditionally been the case, and several sovereign wealth funds have already stepped up their efforts in this regard.”

Thank you;  _ myworkhere _  is done…

Well, my work is actually just getting started. But (!) it is gratifying to see El-Erian pick up on some of the same themes that underpin this research project; i.e. organizational governance and institutional design.

In my opinion, the design and governance of any financial institution — and in particular SWFs, which have a very complex set of constraints and objectives —  is paramount for achieving long-term success. The way I see it, if you can get the governance right, the rest will fall into place. It seems El-Erian agrees.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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