Pimco, the $2tn California-based bond fund manager, has hired former Federal Reserve vice-chair Richard Clarida as global economic adviser and managing director.
Clarida will be replacing Joachim Fels, who will retire at the end of the year, Pimco announced on Wednesday. Before serving on the Fed, Clarida had worked at the fund manager for more than a decade in the same capacity.
Dan Ivascyn, Pimco’s chief investment officer, said in a press release that Clarida’s “work as architect of Pimco’s New Neutral thesis in 2014 . . . is just one example of the invaluable insights he has provided to Pimco clients for many years.
“He rejoins at another inflection point for markets and we look forward to his insights and guidance on emerging trends.”
Pimco, a specialist in fixed income, is facing a changing world: the bull market in bonds, which has benefited debt investors since the start of the 1980s, has turned this year as inflation has risen dramatically. Investors have pulled hundreds of billions of dollars out of bond mutual funds, according to EPFR data.
Those trends may slow as the chances of a recession in the US rise, because bonds are traditional safe-haven investments. But with the Fed committed to curbing inflation, and therefore to keeping monetary policy tight, dynamics in the bond market may be different from those during traditional downturns.
Clarida abruptly resigned from his Fed post earlier this year after being embroiled in a trading scandal. He was cleared of wrongdoing following an investigation by the Fed’s Office of Inspector General, an independent watchdog.
Clarida had come under scrutiny after moving between $1mn-$5mn from a bond fund into a stock fund days before the Fed announced measures to backstop financial markets in the early days of the Covid-19 crisis. US stocks began to recover shortly after the central bank’s intervention was announced and in the ensuing months reached fresh record highs.
While Clarida at that time said that transaction was part of a “pre-planned rebalancing”, further disclosures in subsequent months showed that three days before that transaction, he had sold between $1mn-$5mn from the same stock fund.
The Fed watchdog’s investigation found that Clarida had not broken the law or violated ethics standards with the transaction. It did find that he had failed to report several trades in 2019 and in 2020.
Clarida said that his failure to report these transactions was due to “inadvertent errors”.
The scandal was one of the biggest in the Fed’s history and threatened the bank’s reputation. It also ensnared former Boston Fed president Eric Rosengren and former Dallas Fed president Robert Kaplan, who were found to have been actively trading in financial markets during the central bank’s intervention following the spread of Covid-19. The investigation into Rosengren and Kaplan is continuing.
Since the scandal, the Fed has updated its ethics standards, and now bars its officials from buying individual shares and trading in cryptocurrencies, commodities and foreign exchange markets. Officials are limited to investing through diversified investment products such as mutual funds.
Pimco declined to comment on the investigation into Clarida’s trading activity.