Tags: Pimco | Gross | Druckenmiller | Exit | End | Old | Normal

Pimco's Gross: Druckenmiller Exit Marks End to 'Old Normal'

Tuesday, 28 Sep 2010 12:15 PM

Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said the planned exodus of hedge-fund icon Stanley Druckenmiller helps mark the end of the “old normal” for investing.

The departure of Druckenmiller, who has run Duquesne Capital Management LLC since 1980, and fact that Chicago-based hedge-fund Citadel LLC is considering cutting fees on some funds as it attempts to attract clients, “are reflective of a broader trend in capital markets,” Gross wrote in a monthly investment outlook posted on Pimco’s website today. “The new normal has a new set of rules. Leverage and deregulation are fading from the horizon and their polar opposites are in the ascendant,” Gross added.

Druckenmiller told investors last month he’d been worn down by the stress of trying to maintain one of the best trading records in the industry while managing an “enormous amount of capital.” Citadel LLC, the $11.1 billion firm founded by Ken Griffin, is said to be considering cutting fees on the Kensington and Wellington hedge funds, according to two people with knowledge of the firm’s plans.

The “new normal” will be an environment where “future investment returns will be far lower than historical averages,” Gross added. “If bond investors believe that the resplendent and abundant capital gains of the past 25 years will be duplicated from yield levels of 2 to 3 percent -- well, they just haven’t been to Japan, have they?”

Reflation Trade

Even as the best route to economic prosperity is the “good old-fashioned route,” involving things like investment production and new technology development, the Federal Reserve policy makers will resort to “reflation” through a combination of low interest rates and “quantitative easing,” wrote Gross, who runs the $248 billion Total Return Fund.

Pimco reduced holdings of government-related debt for a second consecutive month in August as Treasury yields fell to an 19-month low, according to the website of Newport Beach, California-based firm. The Total Return Fund’s investment in the debt was cut to 36 percent of assets in August, from 54 percent the previous month.

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Bill Gross, who runs the world s biggest mutual fund at Pacific Investment Management Co., said the planned exodus of hedge-fund icon Stanley Druckenmiller helps mark the end of the old normal for investing. The departure of Druckenmiller, who has run Duquesne Capital...
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2010-15-28
Tuesday, 28 Sep 2010 12:15 PM
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