Ben Bernanke, the former Federal Reserve chairman, is joining Pimco as a senior adviser, as the bond giant seeks to bolster its star power after the departure of its co-founder Bill Gross.
The move may be questioned by some competitors, who had criticised the Fed during Bernanke’s reign for being too close to Pimco. The critics suggested that could have potentially given the Newport Beach, California-based firm an advantage in interpreting monetary policy.
In an interview, Bernanke, who announced last week that he had signed on to consult for the hedge fund Citadel, said he would restrict his Wall Street advisory roles to the two firms. He also works at the Brookings Institution thinktank.
“I remain full-time at Brookings. I am not an employee of either firm. I am an outside senior adviser,” Bernanke said. “This is it. There won’t be anymore. Pimco and Citadel prefer not having me consult too many firms and I personally think working with two firms will be plenty.”
Pimco, which oversees $1.59tn (£1.03tn) in assets as of 31 March, and Bernanke declined to say how much he would be paid, however he did reveal he would be attending every quarterly meeting of senior Pimco executives.
Bernanke will not come cheap, however – he received up to $250,000 for a single speaking engagement last year, more than his $200,000 annual salary as Fed chairman.
Bernanke said he had never met Gross, the bond manager known as the Bond King who suddenly quit Pimco in September for Janus Capital, its smaller rival. For decades, Gross had brushed off suggestions that Pimco was too close to the Fed under Bernanke, who was chairman from February 2006 to February 2014.
“The Fed does not regulate Pimco or its parent or any other firm that is affiliated with it,” Bernanke said. The same situation obtains with Citadel, he said. “So there is no contact. I am not going to be involved in any kind of lobbying or any kind of influence with the Fed or Congress or anybody else in the government.”
Between 2007 and 2011, the former Fed chairman Alan Greenspan, Bernanke’s predecessor, also consulted for Pimco, which is owned by the German financial services company Allianz.
In 2008, the Fed hired Pimco, along with three other big Wall Street firms, to implement enormous purchases of agency mortgage-backed securities to keep interest rates low and spur the US economy. Pimco also managed the commercial-paper assets for the Fed during that period.
“If they were employed to do that kind of thing, that was in their professional capacity,” Bernanke said. “I had nothing to do with selecting them or I had no involvement with them myself.”
When asked if he had advised Pimco to prepare for an expected interest rate rise this year, Bernanke said: “No, I haven’t given them any advice on that. I will be speaking broadly about the economy and markets. From my perspective, the way they operate is by taking a macro view – they try to decide how they see the economy evolving both in the United States and abroad, and they base their investment strategies on that macro view. That’s something where I believe I can be helpful, thinking about where the economy is going.”
Bernanke, who was a guest speaker at a Pimco client event in March and a participant at the firm’s year-end investment forum in December, said discussions about joining the company began in October.
His lawyers, Robert Barnett and Michael O’Connor of Williams & Connolly LLP, were the chief architects of the Pimco arrangement, according to a source familiar with the matter. Barnett and O’Connor are said to also have brokered Greenspan’s advisory deal with Pimco, the source added.
Bernanke’s appointment comes as investors continue to pull money from some Pimco funds six months after Gross’s departure. Pimco has seen $123.5bn of net withdrawals from its open-ended funds since he left, even as performance improved.
Outflows from the flagship Pimco total return fund, the world’s largest bond fund, which Gross managed since 1987, have slowed to an average of $7bn to $8bn a month recently, from $23.5bn in September.
In the first three months of this year, the Pimco total return fund delivered a net after-fee return of 2.22%, outperforming its benchmark by 61 basis points and generating excess returns of 68 basis points above the Morningstar intermediate term bond average.
“We are honoured to have Dr Bernanke serve as an adviser to Pimco, and look forward to benefiting from his extraordinary knowledge and expertise to help us add value for our clients,” Douglas Hodge, Pimco’s chief executive said.
“His unrivalled experience in navigating the global economy through the financial crisis will provide Pimco’s investment professionals with unique insights as we help our clients amid a challenging and uncertain period for global markets in coming years.”
Hodge declined to discuss Bernanke’s compensation or whether Bernanke would have an equity stake in Pimco.