Gross exit spurs withdrawal of $27.5 billion from Pimco fund
Investors are reviewing their allocations, moving money to competitors such as Vanguard Group Inc. and DoubleLine Capital LP.
By Mary Childs, Bloomberg |
Updated on November 05, 2014
Thank you for sharing!
Your article was successfully shared with the contacts you provided.
Nov. 5 (Bloomberg) — Pacific Investment Management Co. had record redemptions from its biggest mutual fund in the first full month after the surprise departure of former manager Bill Gross, with clients pulling $27.5 billion in October.
Half of those redemptions from the Pimco Total Return Fund occurred in the first five trading days of October and they then “slowed sharply,” according to a statement from the Newport Beach, California-based firm yesterday. The redemptions followed $23.5 billion in withdrawals from the world’s biggest fund in September and brought assets to $170.9 billion, down 42 percent from a peak in April 2013.
“This could easily go into the first quarter before you see the flows ebb,” said Michael Rosen, chief investment officer at Angeles Investment Advisors LLC in Santa Monica, California, who oversees $47 billion for endowments and pensions. “There’s a fair amount up for play over the next few months or so.”
Pimco has hired back three high-profile names in recent weeks as it seeks to reassure clients rattled by Gross’s Sept. 26 departure. Investors are reviewing their allocations, moving money to competitors such as Vanguard Group Inc. and DoubleLine Capital LP or parking it in money-market funds and exchange- traded funds while they reevaluate.
The largest daily redemption in September came the day of Gross’s departure, Pimco said Oct. 1 in a statement.
Total Return isn’t increasing cash-like holdings in the fund to meet redemptions, Scott Mather, one of three newly appointed managers, said in October.
The fund had a 53 percent cash position as of Sept. 30, and a 51 percent offset related to derivatives including futures and swaps, according to the firm’s website. Ten percent of its holdings were invested in emerging markets, 20 percent in mortgage-related securities and an additional 13 percent in U.S. credit.
Gross had relied on derivatives to juice returns in the second quarter, replacing most of the $48 billion of U.S. Treasuries in Total Return with about $45 billion of futures, according to an August filing. The contracts require small up- front payments, freeing up money for the fund to invest in higher-yielding securities including Brazilian, Spanish and Italian debt.
“The liquidity profile of the Fund remains high, and, as always, the Fund is being managed consistent with the firm’s market outlook and alpha strategies while meeting diminishing redemptions,” the firm said in the statement yesterday.
The new chiefs are trying to calm clients, saying there will be no major changes in investment strategy at Total Return.
“It’s business as usual,” Mather said in a telephone interview in September after the management changes.
Pimco Total Return, which was once the biggest U.S. mutual fund, is now the third-largest in the nation as offerings from Vanguard have overtaken it, according to data compiled by Bloomberg.
Vanguard, known for its low-cost indexing funds, attracted more money in the first 10 months of this year than it in any full calendar year in its 39-year history. It has received $164.3 billion in its mutual funds and exchange-traded funds this year.
Pimco Total Return had more than doubled in size from $132 billion at the end of 2008, after weathering the financial crisis with returns that beat 83 percent of rivals. It ballooned to a peak of $293 billion in April 2013, before the Federal Reserve first hinted it would unwind stimulus measures, sparking investor redemptions and unsteady performance.
Pimco is bringing back old members of the investment committee including Marc Seidner, who had left in the wake of former Chief Executive Officer Mohamed El-Erian’s departure. Nobel Laureate Michael Spence returned to Pimco as a consultant and money manager Jeremie Banet rejoined as executive vice president last week.
Gross, who co-founded Pimco in 1971 and built it into a $1.87 trillion money manager, departed after his deputies including now group Chief Investment Officer Daniel Ivascyn threatened to quit and management debated his ouster, according to people familiar with the matter. He abruptly resigned to run an unconstrained fund at money manager Janus Capital Group Inc.
Clients have been withdrawing assets from the Pimco Total Return Fund since May 2013 as performance trailed peers and investors removed money from traditional fixed-income strategies in anticipation of rising interest rates. Returns in the past 12 months of 3.3 percent through Nov. 3 trailed 64 percent of comparable funds, according to data compiled by Bloomberg. Over five years, the fund beat 63 percent of peers.
Last year, Total Return lost a record $41.1 billion from client redemptions, according to estimates from Chicago-based Morningstar Inc.
Prudential Financial Inc., former Pimco parent Pacific Life Insurance Co., Massachusetts Mutual Life Insurance Co., Alabama’s Treasury and Florida’s state pension have all moved money from Pimco in recent weeks.
Complete your profile to continue reading and get FREE access to BenefitsPRO.com, part of your ALM digital membership.
Your access to unlimited BenefitsPRO.com content isn’t changing. Once you are an ALM digital member, you’ll receive:
Critical BenefitsPRO.com information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events.
Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
From an attempt to override the veto to a legal challenge by Republican state attorneys general in 25 states, the political issues surrounding Labor’s ESG rule will continue to swirl for the foreseeable future.
While the new retirement law offers unique opportunities for employers, companies need to consider how much value employees will place on the new savings vehicles, such as automatic enrollment and emergency savings.
In today’s 24/7 business climate, burnout has become a common occurrence: Gallup reports it now affects as many as 80% of American workers. Employers can benefit from financial and operational advantages while combating burnout and taking better care of their workforce’s behavioral health. Download this eBook to learn how you can help your clients make it easy for their employees to get the behavioral healthcare they need, conveniently and affordably.
Benefits leaders can make significant progress toward DEI goals, improve operational metrics, and support a healthier workforce by offering digital therapeutics. Download this white paper and learn how offering a digital solution for heart health can generate thousands in savings per participant.
Heart disease is the leading cause of death for U.S. adults and affects men and women differently. This white paper explores a digital solution targeting heart health that works to equalize healthcare and work alongside an employer’s benefits ecosystem.