Pimco Rehires a Former Top Executive

Before he resigned as chief executive of Pimco, Mohamed A. El-Erian lent the asset management firm a measure of gravitas, opining frequently on the economic issues of the day.

Now, in the wake of Mr. El-Erian's surprising departure in March, Pimco has brought back a prominent former executive, Paul A. McCulley, to help the firm reassure skeptical investors and bolster its intellectual credentials.

Mr. McCulley, 57, a longtime financial economist who helped insulate Pimco from the financial crisis before retiring in 2010, has been hired as a managing director and the firm's chief economist, a newly created role, Pimco said on Tuesday. He will sit on the investment committee and report to the company's famous founder and co-chief investment officer, William H. Gross.

For Pimco, which turned in disappointing performance in its bond funds last year, Mr. McCulley may act as a voice of experience on the investment committee and help Mr. Gross groom the group of executives who were quickly promoted after Mr. El-Erian announced his departure.

More immediately, Mr. McCulley's return sends the message that Pimco still has what it takes to attract boldfaced talent.

'It's meant to reassure people that there's still senior leadership there,' said Eric Jacobson, an analyst with Morningstar. Bringing in Mr. McCulley, he added, may calm 'the nerves of people who've started to question the cohesiveness of the investment committee.'

Pimco has contended with a storm of negative attention this year stemming from the resignation of Mr. El-Erian, who was considered Mr. Gross's heir apparent. Even as Mr. Gross insisted Pimco had become a 'better team,' unflattering news reports portrayed a tense environment inside the company. A report in The Wall Street Journal described how Mr. Gross would sometimes lash out at employees.

In a management overhaul, Pimco promoted Douglas M. Hodge, the chief operating officer, to succeed Mr. El-Erian as chief executive, and it elevated six employees to the role of deputy chief investment officer, reporting to Mr. Gross.

But investor money has been flowing out the door. Investors in Pimco's Total Return Fund, a giant bond fund managed by Mr. Gross, have pulled out a net of $11.4 billion this year through the end of April, according to Morningstar data.

Mr. McCulley, though he will not work as a portfolio manager, will help Pimco develop the broad economic strategies for which it is known. In addition to leading the investment committee several times a month in discussions about macroeconomics and central bank policy, Mr. McCulley will publish commentary and speak with Pimco's clients, the firm said.

The role will not be full-time. Mr. McCulley will spend up to 100 days a year in Pimco's offices around the world, while continuing to dedicate time to charitable and academic pursuits, Pimco said.

But Mr. McCulley's presence may help provide a counterweight to Mr. Gross, who lost his aura of invincibility on Wall Street after some highly visible miscalculations, including bad bets on the direction of Treasury bonds.

'Bill Gross is one of the most talented and successful investors of our time,' Mr. Hodge, the new chief executive, said in a statement on Tuesday, crediting 'Bill's personal leadership in recruiting Paul to the firm.'

Robert Galbraith/Reuters

Mr. McCulley, who worked as an economist at UBS between two periods at Pimco, was able to identify worrisome trends in the financial system before the crisis erupted in 2008. Managing Pimco's short-term assets, he avoided two types of investments - subprime mortgages and asset-backed commercial paper - that created big losses for other investors.

Lending him intellectual heft, Mr. McCulley is credited with coining the term 'shadow banking,' referring to non-bank lenders that played a role in the crisis. A decade earlier, in response to the Russian debt crisis of 1998, he came up with the term 'Minsky moment,' after the economist Hyman Minsky, to describe a sudden collapse in asset values.

Mr. Gross and Mr. El-Erian in recent years popularized another phrase, the 'New Normal,' to describe the period of slow economic growth after the financial crisis. The firm this month tweaked its economic outlook, adopting the phrase 'New Neutral' to evoke rock-bottom interest rates.

Mr. McCulley, who in recent years has written papers on monetary policy, said in a statement on Tuesday that he looked forward to 'working side by side with Bill as economic counselor.'

'Pimco will always be Camelot to me,' he said.

Befitting a Medieval knight, Mr. McCulley grew out his hair and beard after leaving Pimco. But while the firm is known for its casual dress code, Mr. McCulley has adopted a more clean-cut look in preparation for his new role, a spokesman said.

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