September 29, 2014 / 10:34 AM / 3 years ago

With Pimco's Gross out, Allianz tries to reassure investors

The logo of Europe's biggest insurer Allianz SE is pictured at their headquarters in Unterfoehring, near Munich February 26, 2014. REUTERS/Michaela Rehle

FRANKFURT/NEW YORK (Reuters) - Top executives of Pimco and its German parent, Allianz SE, scrambled on Monday to stem the outflow of money after the stunning exit of star bond manager Bill Gross last week, but even after months of internal strife Allianz said it plans to let Pimco continue to steer its own ship.

DoubleLine Capital, an investment firm that has been a major rival of Pimco, reported that it had its second biggest net inflow day ever on Friday, the day of Gross’s surprise departure.

On Monday, the chief executive of Pacific Investment Management Co., Doug Hodge, and its newly installed chief investment officer, Dan Ivascyn, who stepped into the post with Gross’ resignation on Friday, held calls with financial advisers from both Morgan Stanley and Merrill Lynch to try to stem the flow of client assets.

Los Angeles-based DoubleLine Capital took in between $400 million and $500 million in net inflows on Friday alone, Chief Executive Jeffrey Gundlach told Reuters. Investors continued shifting money to DoubleLine at a hectic pace on Monday, another source at the firm said.

Frankfurt-based insurer Allianz said it remains fully committed to Pimco but does not plan to step up its oversight of the Newport Beach, California-based operation it acquired about 15 years ago, even after Gross’ departure to join far-smaller rival Janus Capital Group capped months of turmoil.

Before the 70-year-old Gross left Pimco, the firm was managing nearly $2 trillion of assets. Its flagship bond fund, the Pimco Total Return Fund, the world’s largest fixed-income portfolio, long run by Gross personally, accounted for more than $220 billion alone.

On a conference call, top Allianz and Pimco executives tried their best to play down the departure of Gross, who has been dubbed the “Bond King” for his prowess in the fixed-income market. For the first time they also gave specifics about a long-simmering rift with Gross, saying there had been differences over the strategic direction of Pimco, which had prompted Gross to leave.

But despite the upheaval, which started eight months ago with the abrupt resignation of Pimco CEO Mohamed El-Erian following a row with Gross, Allianz gave no indication that it would exert greater control over the firm, as some investors have demanded.

Allianz Chief Executive Michael Diekmann, pressed on the issue of control, said it was important that the German group was not “over-managing or micro-managing a very successful unit.”

Allianz has long granted broad independence to Pimco, but Gross’ departure showed that the approach was not without risk. His resignation hit Allianz shares hard on Friday, knocking them 6 percent lower. They stabilized on Monday, closing up about 0.25 percent.

“FUNDAMENTAL DIFFERENCES”

Gross co-founded Pimco in 1971, turning it into the world’s biggest bond investor. Allianz bought Pimco for $3.3 billion in 2000 and now garners nearly a third of its profits from Pimco.

But over the past year, as bonds lost their appeal amid rock-bottom interest rates, Gross appeared to lose his reading on the bond market. The Total Return Fund has lagged the benchmark Barclays index over the last year and it trails 75 percent of rival funds, according to fund tracker Morningstar.

In August alone, the Total Return Fund had outflows of $3.9 billion, marking a 16th straight month of outflows.

At the same time Gross’ increasingly erratic behavior led Pimco to begin to distance itself from him in meetings with clients. Some investors began to see Gross as a liability amid reports of clashes with Pimco colleagues, most notably El-Erian, who remains an adviser to Allianz after leaving Pimco in January.

“It became clear over the course of this year that Pimco’s leadership and Bill had fundamental differences about how to take Pimco forward,” Hodge said on Monday, pointing to rifts over strategic direction, management style and media strategy.

“Those were the ones that broadly were at issue with Bill and as a result, his decision to resign.”

Hodge said he had spent the weekend reaching out to big institutional clients to reassure them, adding that the “vast majority” were standing by Pimco.

INVESTOR MOVES

Pension funds, fund analysts, and wealth managers signaled that the changes in Pimco’s leadership and investment management have prompted them to review their decision to invest with the firm.

The North Dakota Retirement and Investment Office plans to meet with Pimco this week, David Hunter, the NDRIO executive director and chief investment officer, said in an email to Reuters. NDRIO oversaw $9.4 billion in total assets as of June 30. Approximately $490 million of that was with Pimco as of the end of August, Hunter said.

Morningstar, whose star rating system is influential among wealth advisers, said that it was reviewing its ratings of all Pimco managed funds, while money management firms announced that they are no longer sending additional client assets to the firm.

People’s Wealth Management, which has approximately $300 million invested with Pimco, is now sending dollars that were once marked to Pimco to a Fidelity bond fund, said Karissa McDonough, a fixed income strategist at the firm.

Despite his lackluster performance this year, some advisers were in the process of following Gross to Denver-based Janus, where Gross will take over a new and relatively tiny bond fund starting in October.

“The only time we really lost money is when we didn’t listen to Bill Gross,” said Ronald Knipping, principal of Michigan-based Rehmann Financial, which manages about $3.5 billion for retail investors.

“He may underperform some times, but we haven’t made a bad mistake so far,” he added.

Additional reporting by Jennifer Ablan, Jed Horowitz and Luciana Lopez; Writing by David Randall and Kathrin Jones; Editing by Dan Burns and Leslie Adler

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