Pimco Could See Withdrawals Up to 30% as Managers Stunned

Pacific Investment Management Co. may see asset withdrawals of as much as 30 percent after the surprise departure of Bill Gross, a legend in the bond world who became a familiar face to Main Street investors as they poured money into the firm’s funds through retirement plans.

Money managers said they are monitoring developments at Newport Beach, California-based Pimco, which manages $1.97 trillion in assets and has seen record redemptions as investors turned away from fixed-income in anticipation of rising interest rates. Sanford Bernstein said in a report today that Pimco could see withdrawals of 10 percent to 30 percent.

“Stunning,” Michael Rosen, chief investment officer at Santa Monica, California-based Angeles Investment Advisors, said of the departure.

Gross, 70, who co-founded Pimco more than four decades ago and managed the world’s biggest bond fund, will start Sept. 29 at Janus Capital Group Inc., Denver-based Janus said today. His departure comes after a tumultuous year for Pimco with the exit of its former chief executive officer, Mohamed El-Erian.

Some wealth managers had been exiting Pimco this year amid confusion over its leadership.

“We’re almost completely out of Pimco,” said Kathy Lintz, CEO of Matter Family Office in St. Louis. “We moved swiftly to get out, sensing the team was falling apart.”

Retirement Plans

Lintz said her firm, which manages about $2.7 billion for wealthy families, started moving money from Pimco funds after the departure of El-Erian, and Chris Dialynas, manager of Pimco’s Unconstrained Fund, went on sabbatical in the past year. Matter Family Office had about $100 million in Pimco investments, she said.

Pimco funds that have investments from employer-sponsored retirement plans may stave off some redemptions in the short term because it takes employers months to change choices for workers, said David Halseth, principal at Denver-based Strategies LLC, which advises companies on their 401(k) investment options.

“Bond fund competitors will pounce on this and claim the sky is falling at Pimco,” Halseth said. “We have had multiple firms try to get us to make changes ever since the issue with Mohamed El-Erian came to light.”

The Pimco Total Return Fund, which has $222 billion in assets that were managed by Gross, is the largest fund held by 401(k)-type plans, according to San Diego-based BrightScope Inc., which rates retirement plans.

Watch List

Pimco ended up on the watch list for many investment consultants after El-Erian left, said Henry Yoshida, who advises on about $1.6 billion of 401(k)-type assets. Given Gross’s reputation and track record, many were willing to give the firm time to regroup, he said.

“The news today changes all of that,” said Yoshida, who is based in Austin, Texas. “Our group and many others will begin making recommendations to map assets from Pimco to another fixed income fund.”

The signs of disarray at Pimco will cause many to rethink their investments and possibly follow Gross to Janus, said Kurt Brouwer, chairman of Tiburon, California-based advisory firm Brouwer & Janachowski LLC, who has invested in Pimco funds since the 1980s.

“We’ve done that before, for example, when Jeffrey Gundlach left TCW and created his own firm, we did move money to DoubleLine,” said Brouwer. “It may be a smart move because maybe without any organizational management responsibilities, Bill may be rejuvenated.”

Too Early

Jon Grabel, chief investment officer of the Public Employees Retirement Association of New Mexico, said it’s too early to make a decision about moving assets. Pimco manages about $725 million for the association in a separate account, Grabel said.

“One person may get the headlines, but one person doesn’t manage trillions of dollars,” he said.

The California Public Employees’ Retirement System, the largest U.S. pension, said it doesn’t have plans to change its investments with Pimco, according to an e-mailed statement today.

“Calpers has respect for both Bill Gross and Pimco investment professionals,” the pension system said. Calpers, which has about 1.5 percent, or $1 billion, of its fixed-income assets in a Pimco international bond fund.

Some Exited

The Florida State Board of Administration, which manages $147 billion in its Florida Retirement System Pension Plan, has been monitoring Pimco since El-Erian left. The fund has $1.9 billion invested in Pimco and nothing in Janus, said Dennis MacKee, a spokesman for the pension.

Pimco is on the system’s watch list, which isn’t a precursor to redemption, MacKee said. It means the board is looking closely at the funds’ performance and and operations and will meet with consultants and investment staff to decide what to do, he said.

New York City’s five pension funds, which has $7.1 billion with Pimco where its been an investor since 1987, are evaluating the situation, the New York City Office of the Comptroller said in an e-mailed statement. Total assets of the funds for firefighters, police officers, teachers, school administrators and civil servants is about $160.5 billion.

The $30.2 billion Indiana Public Retirement System said Pimco remains on its watch list and it’s monitoring developments, Jennifer Dunlap, a spokeswoman for the pension fund, said in an e-mailed statement. The retirement plan had put Pimco on its list in January.

Asset Flow

Analysts at Bernstein said in its report today that Gross’s departure will add to the uncertainty about Pimco’s fund flows. They expect a “good deal” of Pimco clients to follow the bond manager to Janus. A drop in assets of 10 percent at Pimco might have a minor, or 2 percent, impact on the fair value of its parent company, the German insurer Allianz SE, the report’s writers said. A 30 percent outflow in assets might reduce the stock an estimated 13 percent.

“Our options are to fold, hold or double down, I guess,” said Rosen of Angeles, a consultant that helps oversee $45 billion in assets. “You can eliminate one of those pretty quickly,” he said, referring to the option of adding more money to Pimco.

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