Two months after Bill Gross quit Pacific Investment Management
Co., the giant Pimco Total Return bond fund that he managed for 27
years is showing signs of stabilizing.
Pimco said Tuesday that investor outflows from Total Return
slowed sharply in November to $9.5 billion, following mutual
fund-industry record withdrawals after Mr. Gross's abrupt departure
Sept. 26. Even after the investor redemptions, Pimco Total Return
has $162.8 billion under management, making it the world's largest
bond fund.
In September and October, investors pulled about $23.5 billion
and $27.5 billion, respectively, with the bulk of those outflows
occurring in the days after Mr. Gross's departure, according to
Pimco. According to data from Pimco, a Newport Beach, Calif., unit
of German insurer Allianz SE, the Pimco Total Return fund alone
lost as much as $8 billion in one day during the two weeks after
Mr. Gross's departure.
The slowdown in withdrawals comes as Pimco has posted a sharp
improvement in the fund's performance.
The Total Return fund beat out 99% of similar bond funds in
November, returning 0.99% compared with 0.71% for the Barclays U.S.
Aggregate Bond index. That is the giant fund's best monthly
percentile rank since at least 2003, when fund research firm
Morningstar Inc. began tallying.
The gains follow numerous market-lagging months that helped fuel
a 19-month string of investor withdrawals, Morningstar Inc. data
show. The fund shrank by more than $100 billion in assets during
that time.
Traders and portfolio managers say Pimco is now a calmer place
to work. That is a marked contrast to the turmoil of the past year,
according to people close to the matter, when executives including
former Chief Executive Mohamed El-Erian bolted after some clashed
with Mr. Gross.
The internal strife grew to the point that in late summer, Mr.
Gross spent time hunting internally for what he called a "mole" who
allegedly leaked information about Pimco to the media, according to
people familiar with the previously unreported incident.
Mr. Gross eventually believed he had identified the alleged
leaker as a senior executive at the firm. Mr. Gross told various
colleagues he wanted the executive fired, but Pimco's executive
committee voted not to dismiss the executive, ignoring Mr. Gross's
entreaties. The decision disappointed Mr. Gross and helped pave the
way for his eventual departure, the people said.
The Wall Street Journal has reported that senior executives were
planning to fire Mr. Gross after talks over a diminished role at
the firm fell apart, and Mr. Gross' behavior last summer grew
increasingly erratic.
A spokesman for Janus wouldn't comment for the firm and said Mr.
Gross declined to comment.
Now, performance and morale have improved, according to people
familiar with the matter. The portfolio-management team that
replaced Mr. Gross in managing Total Return, led by group Chief
Investment Officer Dan Ivascyn, is "fully engaged and certainly
looking forward," Mr. Ivascyn said Tuesday.
Scott Mather, one of three new portfolio managers of the Total
Return fund, said Tuesday the firm is moving past the "knee jerk
reaction in terms of flows that you would expect to happen."
Messrs. Mather and Ivascyn say the firm's macroeconomic outlook
for sluggish growth world-wide, with the U.S. as a bright spot,
have helped boost performance. Pimco also has avoided riskier
mortgage securities and increased its investment in
shorter-duration bonds, limiting potential losses should interest
rates rise.
Kelley Snook, president of SHA Retirement Group, a Troy,
Mich.-based consultant with about $3 billion in assets under
management, said he has advised clients not to move their funds
from the firm. Mr. Snook says weekly conversations with Pimco
representatives and an October visit with executives at its
headquarters in Newport Beach have helped reassure him that the
company is on track.
"I think they're managing it well," he said. "We're closely
watching how they manage their portfolio and, at this point, it's
business as usual."
Still, challenges remain and plenty of investors are still
skittish and could move to pull money out of the firm in the months
ahead. Through November, the Pimco Total Return fund returned 5.2%,
lagging the 5.7% return of the broad Barclays index.
Boston University and DePaul University in Chicago both removed
the Pimco Total Return from retirement plan options for employees
in November, according to communication reviewed by The Wall Street
Journal.
DePaul said in a note to employees that it was replacing the
Total Return with the Loomis Sayles Core Plus bond fund in its
403(b) retirement plan. A university spokeswoman declined further
comment.
Boston University said in a note that a recent review of its
funds for "consistency of investing style" and "fund performance"
led it to also replace the Pimco Total Return with the Loomis
Sayles Core Plus bond fund. A spokesman declined further
comment.
At a November meeting, the San Francisco Employees' Retirement
System approved the removal of $273 million from the Pimco Total
Return fund and a new investment with the Baird Core Plus Bond
fund, in part because of the large investor withdrawals at Pimco,
according to a retirement committee report reviewed by The Wall
Street Journal. The plan will keep $100 million in Pimco's emerging
markets debt fund.
The pension fund and its consultant "could not anticipate
whether large investors planned to liquidate their holdings,"
according to the committee report.
Dan Fitzpatrick contributed to this article.
Write to Kirsten Grind at kirsten.grind@wsj.com and Gregory
Zuckerman at gregory.zuckerman@wsj.com
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