HardAssetsInvestor

An Interview With Bob Greer

Bob Greer of PIMCO is one of the most important commodities portfolio managers in the world. We asked him where the commodities market is heading.

• What the commodities market is all about
• How to use commodities in your portfolio
• The short- and long-term outlook for the market

Bob Greer of PIMCO is one of the most important commodities portfolio managers in the world. As the executive vice president of PIMCO and manager of the RealReturn products (including the PIMCO Commodity RealReturn Strategy Fund), Bob helps oversee some $16 billion in commodities funds and has one of the more-established track records in the business. He spoke recently with the editors of HardAssetsInvestor.com about the commodities marketplace.

HardAssetsInvestor.com (HAI): Bob, thanks for taking some time with us today. Can you tell me a bit about your background?

Bob Greer (Greer): In the 1970s after having a background of undergraduate in math and economics at Stanford Business School, and some computer consulting, for reasons totally unrelated to my educational background, I found myself involved full time in the commodities futures markets. We had just barely seen the first stock index funds. It was at a time when the only players in the commodities markets were speculators or trade interests using them to manage risk.

I looked at the commodities markets a little differently and said, "Wow, the price of wheat is no more volatile than the price of IBM, but because of all the leverage people can use in commodities, they have this reputation for being very, very risky. What if you took the leverage out of a commodity position-[using] long-only, fully collateralized positions? What if you also didn't try to guess what markets were going up or down, but allocated among a range of available commodities based on their relative importance to world trade? If you did that, you'd have a commodity index-something that would track the asset class. And then you could evaluate [commodities] in the context of an overall portfolio, not in isolation.

But this was in the 1970s. People thought the words "commodity" and "index" didn't belong in the same sentence. But I did the research, wrote a paper and ended up having it published in the Journal of Portfolio Management. If anyone goes back and checks history, that was in fact the first time an investable commodity index was ever defined.

HAI: Did the index have a life of its own after that?

Greer: I went on and did other things, given that there was no real interest in commodities index investment. In 1991, Goldman Sachs came out with their commodity index [now the S&P GSCI]. The head of the commodities department at Daiwa Securities knew that I was the first one to have created this idea, so he reached out to me and said, "How would you like to reincarnate your early work, update it and bring it to market as a competitor?"

I jumped at the chance. I did that for about eight years, and then had the opportunity at PIMCO to bring my commodity experience to the broader world of RealReturn strategies [which use TIPS as collateral].

HAI: PIMCO is a bit unique in that it's being pretty active in managing the collateral.

Greer: By the time I joined PIMCO, they had already determined that the logical collateral for many investors would not be T-Bills, which is what's used in the commodity indexes. If you had a choice, the more logical collateral would be TIPS, because they provide an additional inflation-hedging component. They also provide more duration-if you have a positive slope to the yield curve, that's an advantage. And if we could actively manage the collateral-given that PIMCO is an accomplished manager of fixed income-we could add value.