Gross' sudden Pimco exit may quicken outflows to rivals

Fri Sep 26, 2014 3:11pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Jennifer Ablan and Luciana Lopez

NEW YORK (Reuters) - The Bond King has lost his throne.

Bill Gross, who built Pimco into a $2 trillion asset manager and became one of the world's best-known bond investors, quit the firm he co-founded on Friday after his flagship fund suffered its 16th straight month of outflows and amid a Securities and Exchange Commission probe into whether one of his funds artificially inflated returns.

Gross's sudden departure follows a public falling-out with former heir-apparent Mohamed El-Erian, who quit in January, and may accelerate net outflows from its funds, which have shed some $35 billion this year, the worst in the mutual fund industry out of 764 fund groups, Morningstar data show. Pimco is likely to name Dan Ivascyn to replace Gross as chief investment officer, said a person familiar with the situation.

"This will likely accelerate the negative cash outflow momentum at Pimco," said David Schawel, vice president and portfolio manager of Square 1 Financial. "This news doesn't help with the backdrop of a lot of investors chasing performance. Pimco is no longer the hot go-to fund."

Since the start of the year, investors have pulled $25 billion from the Pimco Total Return Fund, the world's largest bond fund, and $6 billion from the Pimco Unconstrained Bond Fund, according to Morningstar data as of the end of August. Both were personally supervised by Gross, 70, who also oversaw the Pimco Total Return ETF, the object of the SEC probe.

Pimco's losses come as rival firms attracted about $25 billion into the intermediate-term bond category – to which Total Return belongs - and about $18 billion into non-traditional bond funds – to which Unconstrained belongs.

"People chase performance and performance hasn't been crushing it at some of the biggest and most high-profile Pimco funds," Schawel said. "It's easier for money to flee when all of these things are happening aside from nervousness surrounding the leadership shakeup and now Gross's departure."

Gross will join the $177 billion Janus Capital Group and said he was going to "get back to spending the bulk of my day managing client assets." Michael Diekmann, chief executive officer of Allianz Group, which owns Pimco, said "the management and investment structure put in place in January as well as the thorough succession planning gives us complete confidence in Pimco's investment and executive leadership team," in a statement on Friday.   Continued...

Bill Gross, co-founder and co-chief investment officer of Pacific Investment Management Company (PIMCO), speaks at the Morningstar Investment Conference in Chicago, Illinois, in this June 19, 2014 file photo. REUTERS/Jim Young/Files