The drama continues. While it might not be the biggest story, it is one that touches everyone. Pimco is having some issues, which isn’t surprising since the founder and face of the company has left. But the amount of money rolling out is troubling.
Jennifer Ablan and Luciana Lopez had this story for Reuters:
Pacific Investment Management Co suffered a record $23.5 billion of withdrawals from its flagship Pimco Total Return Fund in September, with its largest daily outflow occurring on the day of Bill Gross’s surprise resignation from the firm.
The Newport Beach, Calif.-based fund manager said the Pimco Total Return Fund, run by Gross for 27 years who made it into the world’s largest bond fund, is “well positioned” to meet potential redemptions.
The Pimco Total Return Fund has now experienced 17 straight months of outflows, totaling $92.3 billion. Assets under management have fallen below $200 billion, down from a peak of $292.9 billion in April 2013.
“I’d say that this spike in outflows might not be over. Earlier we thought that $8 billion or $9 billion in a month was pretty bad, and here we’re getting $8 (billion) and $9 billion a day,” said Jeff Tjornehoj, head of Americas research at Lipper, a Thomson Reuters company.
“I think there’s probably a couple of phases to it. First, it’s the shock, people who had been thinking of withdrawing assets to Total Return reacted immediately. And then the next phase is those who are wondering if they got left behind.”
The New York Times story by Matthew Goldstein pointed out that the big question is how long the market will continue to react to the news of the departure:
To put the September numbers in perspective, the $23.5 billion in net money redeemed is more than most hedge fund managers run in their portfolios. It was the most money redeemed from Total Return in a single month since June 2013, when investors redeemed $9.6 billion, Morningstar said.
The big question is whether the bleeding in the Total Return Fund, which began last year, will begin to ease now that Wall Street is beginning to absorb the shock of Mr. Gross’s surprise resignation. For the past several days, Pimco’s revamped leadership has been reaching out to Wall Street, investors and the news media to try to steady the ship.
But mutual-fund industry analysts are predicting another wave of redemptions in the coming weeks, particularly in the Total Return Fund, as public and private pensions decide what do with their bond market allocations. It is believed that much of the initial rush of money out of the Total Return Fund was retail investors selling shares held in brokerage accounts and individual retirement accounts.
For public pensions, the process of redeeming money from a fund can take several weeks to complete. First, the pensions await recommendations from their outside consultants, and then the boards that oversee the pensions must gather to vote on what to do.
A number of consulting firms have begun recommending that pensions sell any Pimco funds, like Total Return, which Mr. Gross had personally managed. Russell Investments’ pension consulting arm, for instance, is one firm that is recommending that clients sell shares in the Total Return Fund, said two people briefed on the matter but not authorized to speak publicly. A Russell spokesman declined to comment.
Kirsten Grind, Chris Dieterich and Min Zeng detailed in The Wall Street Journal which funds were gaining from Pimco’s troubles:
A handful of large fund managers are benefiting from the unrest. DoubleLine Capital, a U.S. investment firm led by Jeffrey Gundlach that has emerged as a top rival to Pimco, said Wednesday its mutual funds attracted $1.65 billion in September, the most this year. Several exchange-traded bond funds that track broad indexes also have received sizable inflows, as investors seeking new homes for their money park funds in highly liquid investments.
Janus said it didn’t expect to release flow data soon.
The scramble underscores the imperative at Pimco to retain clients as rivals circle the fund. Pimco executives have been hosting conference calls with large institutional investors, holding in-person meetings with other investors and appearing on CNBC to send a message of calm resolve.
Investors are pouring tens of billions of dollars into bond funds amid soft U.S. growth and low interest rates that have depressed returns on safe assets, putting a premium on income-generating investments. On Wednesday, the Dow Jones Industrial Average dropped 238.19 points, or 1.4%, to 16804.71, while the 10-year U.S. Treasury note rose 29/32 to yield 2.405%, its lowest in more than a month.
U.S.-listed bond mutual funds and ETFs attracted $116.6 billion from investors this year through the end of August, according to Morningstar.
Pimco is struggling, and it’s something that will touch the smallest pension fund and the biggest institutional investor. Many people are looking for new places to put their money, but it’s unclear what the smart investment will be. At this point it looks like the best marketing will win, but only in the short term.
