One group that will survive the ‘new normal’: Pimco’s El-Erian

Mohamed A. El-Erian, whose firm runs the world’s biggest mutual fund, says sovereign wealth funds are poised to profit from a reshaping of the global economy known as the “new normal.”

“Although sovereign wealth funds were not able to completely sidestep the global financial crisis, they have recovered nicely and are well placed as a group to navigate the journey to and through the new normal,” El-Erian, chief executive officer of Pacific Investment Management Co., wrote in Finance & Development Magazine, published by the International Monetary Fund.

El-Erian, a former deputy director at the Washington-based IMF, forecasts that during the next three to five years the world economy will undergo below-average economic growth, more regulation and a higher natural rate of unemployment in what Pimco, manager of $1.1 trillion in Newport Beach, California, calls the “new normal.”

Sovereign wealth funds still carry risks, El-Erian said, as investment managers are beholden to their government supervisors who can be influenced by political forces. “Yet, given the scale of ongoing and prospective changes in the global economy, the alternative of backward-looking business as usual would be even riskier,” he wrote.