Pimco's flagship fund, once billed as the world's biggest bond fund, is shrinking fast.
In September, investors pulled $23.5 billion from the Pimco Total Return Fund, with the largest redemptions coming on Sept. 26, the day Bill Gross stunned Wall Street by resigning from the firm he co-founded more than 40 years ago. Pimco, in announcing the net redemption number on Wednesday, said the Total Return Fund was well positioned to handle future redemptions.
In all, investors have taken more than $50 billion out of the Total Return Fund this year. The fund, which Gross had managed since its inception in 1987, now manages just under $200 billion. That's still enormous, but down sharply from the $290 billion the fund managed just last year.
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 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 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 authorised to speak publicly. A Russell spokesman declined to comment.
The Miami Police Relief and Pension Fund is one of those public pensions wrestling with the fallout of Gross's sudden departure from Pimco. The $116 million public pension is heavily invested in the Pimco Total Return Fund, and its board met on Wednesday morning to consider taking its $16 million investment out of Pimco's flagship fund. The Miami pension is looking at moving those dollars to bond funds managed by either BlackRock, JPMorgan Chase or other major asset management firms. The board, however, chose not to make any decision on Wednesday and to further investigate the matter in advance of its next meeting, on October 15.
"We don't want to be the last man out the door, but we don't think there is an urgency for us to shoot from the hip," said Douglas Rice, chairman of the Florida-based public pension.
But many investors are not being as deliberate as the Miami pension fund.
Net investor redemptions at the Pimco Total Return Exchange Traded Fund, which mirrors the investing strategy of the firm's flagship fund, were $544 million during the month of September, according to Morningstar. The ETF, which was actively managed by Gross, is the subject of an investigation by the Securities and Exchange Commission.
The SEC is looking into an allegation that Pimco may have artificially inflated the valuations for some of the bonds the ETF invested in.
Still, not all institutional investors are so negative about Pimco and the direction of the $2 trillion firm. Perrin Lim, director of capital markets for the Oregon State Treasury, said he expected more redemptions from Pimco funds but expected the asset management firm to thrive in the long term.
Lim, a top advisor to the $70-billion Oregon Public Employees Retirement Fund, said the investment team was "underappreciated" and might benefit from Gross's leaving the firm and no longer casting such a large shadow. Lim said the Oregon pension had about $525 million committed to a Pimco fund, a relatively small exposure. But for now, Lim said, he saw no reason to redeem any of the pension's money from Pimco.
"It's going to be a roller coaster for the next month, maybe longer," Lim said. "But I do think the current team is very sound."
In September, investors pulled $23.5 billion from the Pimco Total Return Fund, with the largest redemptions coming on Sept. 26, the day Bill Gross stunned Wall Street by resigning from the firm he co-founded more than 40 years ago. Pimco, in announcing the net redemption number on Wednesday, said the Total Return Fund was well positioned to handle future redemptions.
In all, investors have taken more than $50 billion out of the Total Return Fund this year. The fund, which Gross had managed since its inception in 1987, now manages just under $200 billion. That's still enormous, but down sharply from the $290 billion the fund managed just last year.
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 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.
| SINKING SHIP |
| Pimco’s flagship fund, once billed as the world’s biggest bond fund, is shrinking fast $23.5 bn Investors pulled from the Pimco Total Return Fund in September $50bn Investors have taken out of the Total Return Fund this year 200 bn Amount of money the fund, which Gross had managed since its inception in 1987, now manages
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A number of consulting firms have begun recommending that pensions sell any Pimco funds, like Total Return, which 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 authorised to speak publicly. A Russell spokesman declined to comment.
The Miami Police Relief and Pension Fund is one of those public pensions wrestling with the fallout of Gross's sudden departure from Pimco. The $116 million public pension is heavily invested in the Pimco Total Return Fund, and its board met on Wednesday morning to consider taking its $16 million investment out of Pimco's flagship fund. The Miami pension is looking at moving those dollars to bond funds managed by either BlackRock, JPMorgan Chase or other major asset management firms. The board, however, chose not to make any decision on Wednesday and to further investigate the matter in advance of its next meeting, on October 15.
"We don't want to be the last man out the door, but we don't think there is an urgency for us to shoot from the hip," said Douglas Rice, chairman of the Florida-based public pension.
But many investors are not being as deliberate as the Miami pension fund.
Net investor redemptions at the Pimco Total Return Exchange Traded Fund, which mirrors the investing strategy of the firm's flagship fund, were $544 million during the month of September, according to Morningstar. The ETF, which was actively managed by Gross, is the subject of an investigation by the Securities and Exchange Commission.
The SEC is looking into an allegation that Pimco may have artificially inflated the valuations for some of the bonds the ETF invested in.
Still, not all institutional investors are so negative about Pimco and the direction of the $2 trillion firm. Perrin Lim, director of capital markets for the Oregon State Treasury, said he expected more redemptions from Pimco funds but expected the asset management firm to thrive in the long term.
Lim, a top advisor to the $70-billion Oregon Public Employees Retirement Fund, said the investment team was "underappreciated" and might benefit from Gross's leaving the firm and no longer casting such a large shadow. Lim said the Oregon pension had about $525 million committed to a Pimco fund, a relatively small exposure. But for now, Lim said, he saw no reason to redeem any of the pension's money from Pimco.
"It's going to be a roller coaster for the next month, maybe longer," Lim said. "But I do think the current team is very sound."
©2014 The New York Times News Service