Pacific Investment Management Co.’s Chief Executive Officer Douglas Hodge said the firm is expecting and is ready for client redemptions following the departure of co-founder Bill Gross.
Withdrawals are “to be expected with any transition of a senior person,” Hodge said Monday in a conference call with analysts where he was joined by top executives at Pimco parent Allianz SE. “We’re ready for that,” said Hodge, who added that it’s too early to estimate redemptions at the Newport Beach, California based firm.
Money already moved from the firm. Jeffrey Gundlach said his DoubleLine Capital LP received hundreds of millions of dollars on Sept. 26 after Gross quit for Janus Capital Group Inc. He said it was the most money gathered in a day this year and the second-highest client deposits since the Los Angeles- based firm started in 2009. Bank of New York Mellon Corp.’s Standish unit has seen money “flowing over the weekend,” Desmond Mac Intyre, CEO of the Boston-based division, said in an interview.
Pimco’s competitors are poised to benefit as large and small investors review their relationship with the firm after Gross’s surprise announcement. California Public Employees’ Retirement System, the largest U.S. pension, the Florida State Board of Administration, and New York City’s five pension plans said they are monitoring the situation. Sanford Bernstein said in a report that withdrawals from Pimco could be 10 percent to 30 percent.
Pimco Total Return Fund may see redemptions of as much as $150 billion, or about two-thirds of its assets, according to a report by Atanasio Pantarrotas, an analyst at Paris-based broker Kepler Cheuvreux.
“Money has been moving in our direction and we have seen it flowing over the weekend,” said Mac Intyre, whose Standish unit manages $166 billion in bonds. “Investors for the past two years have been concerned about the oligopoly of the two big bond managers: BlackRock Inc. and Pimco. People are looking for diversification.”
Hodge said many of Pimco’s large clients, including Calpers, are sticking with the firm and that the new investment team led by Daniel Ivascyn has removed a lot of “uncertainty” for clients.
Calpers, which has about 1.5 percent, or $1 billion of its fixed-income assets in a Pimco international bond fund, doesn’t have plans to change its investments with Pimco. It will monitor developments and conduct thorough analysis, while saying it has “respect” for Gross and Pimco investment professionals.
Smaller investment advisers are starting to pull money out of Pimco. North Pier Fiduciary Management, which advises employers on their 401(k) retirement plan investments, is terminating Pimco Total Return at companies where it manages money directly and recommending its replacement for those where the firm is a consultant, Jim Scheinberg, managing partner at the Los Angeles-based firm, said in an e-mail. North Pier advises on almost $1 billion in assets.
“We view this manager change as a fatal blow to the fund’s track record, rendering it completely inapplicable in evaluation of the fund’s future prospects, thus making it an imprudent investment,” Scheinberg said. “We are conducting replacement evaluations as we speak.”
Bill Hayes, a principal at advisory firm Charles Carroll Financial Partners in Kingston, Massachusetts, said his firm sold portions of its holdings of Pimco High Yield and Total Return funds today. The firm, which has about $55 million in assets under management, didn’t have a large amount in Pimco funds and liquidated less than $10 million, he said.
The new leadership team, including Gross’s replacement as chief investment officer Ivascyn, sought to reassure clients over the weekend that there will be no major changes in investment strategy.
“It’s business as usual,” said Scott Mather, one of three newly appointed managers of the $222 billion Pimco Total Return Fund. “We’ve all been part of the team as members of the investment committee.”
Investors had been pulling money from the Total Return Fund as the world’s biggest bond fund trailed 63 percent of peers over the past year, on track to underperform a majority of rivals for the third year in four. The fund’s assets have shrunk from a peak of $293 billion last year.
Hodge said today that Pimco Total Return and other funds run by the firm have a strong liquidity position to withstand investor redemptions.
“I think it’s important to remember that across the wide spectrum of Pimco portfolios, we do operate and invest in the largest, most liquid sectors of the fixed-income markets,” Hodge said.
At Janus, Gross will manage an unconstrained bond fund that was started in May. Gross and Janus Chief Executive Officer Richard Weil worked together from 1996 to 2010, when Weil was at Pimco. Janus gained a record 43 percent Friday following news of Gross’s hiring.
Hodge confirmed today in the conference call that Gross wasn’t subject to a non-compete agreement with Pimco. The Newport Beach, California-based firm’s employment agreements are based on local labor laws, and non-compete agreements are not easily enforceable in California, Hodge said.
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