Back from Harvard, El-Erian to manage fund for Pimco

Pacific Investment Management Co. plans to open the first fund managed by Mohamed El-Erian since he rejoined the company after quitting as the head of Harvard University's endowment.

Erian, 49, will oversee the Pimco Global Advantage Fund, according to documents filed with the Securities and Exchange Commission. The fund will invest at least 65 percent of its assets in "fixed-income instruments that are economically tied" to at least three countries, the filing said. It can invest in securities denominated in foreign currencies and U.S. dollars, as well as derivatives such as options, futures contracts and swap agreements.

During his last stint at Pimco, Erian produced a five-year annualized gain of 19 percent while managing its Emerging Markets Fund. The new Global Advantage fund will allow Erian to pursue even higher returns, according to Geoff Bobroff, a consultant to asset managers based in East Greenwich, R.I.

"This fund is going to be far more flexible from a management standpoint than the emerging-market fund was," said Bobroff, who has reviewed the Global Advantage filing. "This will give him the opportunity to show his wares."

Pimco spokesman Mark Porterfield said in an e-mail a few days ago that SEC rules "prohibit us from commenting on this fund at this time." Erian didn't return a telephone call seeking comment.

The company did not indicate when the fund would begin.

Erian's former Pimco fund, now managed by Michael Gomez, invests at least 80 percent of its assets in fixed-income securities tied to emerging-market countries. The April 10 SEC filing doesn't list any restrictions on where Global Advantage can invest, stating that it can buy emerging-market securities "without limitation" as well as debt from developed countries such as the United States.

Erian managed the Pimco Emerging Markets Bond Fund until February 2006, when he left to succeed Jack Meyer as the head of Harvard's fund, the world's largest college endowment, with $34.9 billion of assets as of June 30. He guided the Harvard endowment to a 23 percent gain in the fiscal year ended June 30, 2007, adding about $5.7 billion in value.

He returned to Newport Beach, Calif.-based Pimco in December and now shares the position of co-chief investment officer with Bill Gross and co-chief executive officer with Bill Thompson. Erian said at the time that he wanted to wait about six months before running his own fund, according to Paul Herbert, a bond fund analyst at Morningstar Inc., in Chicago.

Global Advantage will seek to outperform the Lehman Brothers U.S. Aggregate Index, the benchmark for many bond managers, as well as an internal Pimco index. The fund will be able to invest in bonds that are rated between "B" and "AAA" by Moody's Investors Service Inc., according to the filing.

"It's really targeted for people who are not looking to hug the benchmark, but are willing to take more risk in pursuit of higher relative and absolute returns," William Nemerever, a partner at Grantham, Mayo, Van Otterloo's GMO & Co. LLC in Boston, said of Global Advantage's investment strategy.

The new fund's maximum average duration - a measure of its sensitivity to changes in interest rates - will be eight years, according to the SEC filing. That is the same as at the Emerging Markets fund.

The SEC filing didn't list any other funds run by El-Erian.

The document also didn't say how much money Pimco Global Advantage hopes to raise.

Pimco is a unit of Munich-based insurer Allianz SE.

*T

--Editors: Larry Edelman, Tim Quinson.

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Miles Weiss in Washington at +1-202-624-1899 or

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Manager:

Mohamed El-Erian.

Key holdings:

Expected to be fixed-

income instruments tied to at least three countries.

Ticker:

This fund has not yet been introduced.