Roman was also confident that PIMCO would not be threatened by the continuing rise of low-cost, passive investment products.
“The first thing I would say is that over one, three, five and 10 years, we’ve beat the benchmarks by 1 to 1.5 percent,” he said. “Also, passive in fixed income makes absolutely no sense. ... If you’re trying to replicate a fixed-income index, you’re going to churn your portfolio. Let’s remember that the more leveraged companies get a bigger slice of the index.”
Active managers in fixed income can also be more responsive to monetary policy changes and the trading behaviors of institutional investors and access derivatives to generate alpha, said Roman. Over a decade, including an active fixed-income product as part of an asset allocation in a defined contribution plan could add as much as 12 percent to 15 percent to the portfolio’s 10-year returns, he said.
Roman sees technology and the possibility of large technology incumbents like Amazon providing investment and financial advice offerings as potential challenges for asset managers like PIMCO. Over time, technology trends may cause a hollowing-out of the industry.
“There are going to be more mergers in the middle” he said. “The more you do different things in the middle—equities, fixed income, and what else – the more stress you have in terms of your ability to invest, and the more likely you are going to be forced to merge with someone else. The Invesco/Oppenheimer merger was an example of that effect.”