Asset Management

Chasing Pimco’s Billions

First Bob and then the cash? Source: Brent Lewin/Bloomberg via Getty Images
First Bill and then the cash?
  • Why it matters

    Why it matters

    Billions of dollars have flowed from Pimco, owned by German insurance and financial services firm Allianz, after start fund manger Mr. Gross left.

  • Facts

    Facts

    • The pension fund of the state of Florida announced this week it is withdrawing nearly $2 billion from Pimco and investing it with rival Blackrock.
    • Pimco’s crisis began with the turnaround in interest rates on U.S. capital markets last year.
    • Pimco’s Total Return Fund remains one of the largest funds in the world with volume of just under $200 billion.
  • Audio

    Audio

  • Pdf

The reputation of Bill Gross, former head of the Pimco investment firm, is still worth billions. That can clearly be seen in the money rushing out of Pimco’s Total Return Fund, which Mr. Gross managed until his sudden departure last month.

In the few days after he resigned September 26, about $20 billion (€15.7 billion) flowed out of Pimco’s Total Return Fund by the end of the month, according to Morningstar research. In all, about $25 billion drained from funds managed by Pimco, a U.S. subsidiary of the German insurance and financial services firm Allianz.

That trend was expected to continue in October, if at a slower pace. For example, the pension fund of the state of Florida announced this week it is withdrawing nearly $2 billion from Pimco. The major portion will be invested with Blackrock, Pimco’s main rival in asset management.

In recent days, other investment companies have seen increased purchases in “total return” bond funds, according to the news agency Reuters. At Metropolitan, the figure was $2.8 billion between Sept. 26 and October 3. At Double Line, where well-known manager Jeff Gundlach is at the helm, it was almost $1.4 billion. Total return bond funds are actively managed investment funds that to some extent make high-stakes bets on market developments.

At Janus Mr. Gross manages an unconstrained fund, which can operate fully detached from indexes and offers more freedom than a total return fund.

Even before the departure of Mr. Gross, Blackrock was benefiting this year from problems at Pimco – officially known as Pacific Investment Management Company. First, there was the abrupt departure of Mohamed El-Erian, who managed the firm together with Mr. Gross. Then stories circulated about the abrasive management style of Mr. Gross. Finally, the company failed in its attempt to integrate Mr. Gross into a new, more cooperative management structure that followed Mr. El-Erian’s departure.

Pimco’s crisis began with the turnaround in interest rates on U.S. capital markets last year. It caught Mr. Gross, who for decades had enjoyed successes as a star fund manager, on the wrong foot. His Total Return Fund, the flagship of the company, began foundering and saw significant withdrawals by investors. However, with a current volume of just under $200 billion, it remains one of the largest funds in the world.

One day after leaving Pimco, Mr. Gross found a new job at the investment company Janus. The Morningstar research firm noted that since Janus is much smaller, the investment company is only partially suitable for taking on new large sums. Moreover, at Janus Mr. Gross lacks the support of extremely experienced management that he could count on at Pimco.

So it’s no surprise that many investors are not following Mr. Gross to Janus and instead turning to his main rivals. In the last days of September, Mr. Gross received only $66 million for his new funds, which had previously totaled $13 million. Morningstar also cites Legg Mason and Franklin Resources as major rivals offering sophisticated investment management.

What is positive for Mr. Gross, however, is that at Janus he manages an unconstrained fund, which can operate fully detached from indexes and offers more freedom than a total return fund.

There is also good news from Pimco. The company’s Total Return Fund has apparently withstood the withdrawals successfully up to now. According to Morningstar, in the week after the departure of Mr. Gross, it only barely missed a rating in the upper quarter of its product class in terms of performance – and so was doing better than before.

Morningstar concluded that the outflow of money had not harmed the fund. This conforms to statements by Pimco’s management, which has repeatedly emphasized that the fund is set up with high liquidity. In other words, in the case of withdrawals, the fund’s holdings can be sold with no problem at any time at favorable prices.

The transfer of investors’ money to Blackrock in particular raises a question about whether the spectacular departure of Mr. Gross marks a shift in the entire industry – away from star fund managers and toward asset administrators with reliable management and a range of flexible, easy-to-handle products.

In recent decades, profits in U.S. capital markets have sunk lower and lower – and that gave investment stars like Mr. Gross many opportunities to strut their stuff. At least in the United States, that trend might be ending now.

 

Frank Wiebe is Handelsblatt’s New York correspondent. To contact the author: wiebe@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!