Many in the financial world were stunned – and more than few relieved – when bond king Bill Gross jumped ship Friday from the Pacific Investment Management Co. firm he co-founded to the much-smaller Janus Capital Group Inc.
Few, though, are worried about the effect his departure will have on 401(k) holders – a significant portion of the investors in the Total Return Fund he managed for Pimco.
“To be honest, I don’t think it will have an immediate impact,” said Christopher Schwarz, an associate professor of finance at the Paul Merage School of Business at UC Irvine. “Generally speaking, once you’re in a fund you almost never leave, unless something incredible happens.”
Often, 401(k) plans with Pimco funds are handled by wealth managers or administrators, not the individual beneficiary. Those plans tend to be reviewed only occasionally, analysts said.
“I don’t think many people know what specific mutual fund they have in their 401(k), let alone who the manager is,” said Todd Rosenbluth, director of ETF & Mutual Fund Research for S&P Capital IQ. “As long as the institutional investor community leaves the fund in the lineup, then money will not as quickly depart.”
The Total Return Fund – the world’s largest bond fund – has stumbled in the last five years, with nearly $70 billion in outflows in the last 16 months, analysts said. And that trend is likely to continue.
Some investors, initially drawn by the Gross brand name, may leave, said Brad Stark, co-founder of Mission Wealth in Santa Barbara. But those movements will be slow.
“While some people will possibly look to move money from Pimco, not all will and not all at once,” said Stark, whose firm has roughly $10 million of $1 billion under management with Pimco.
And skittish institutional investors would have trouble finding a replacement as large as the Total Return Fund, where Gross managed more than $200 billion in assets, Schwarz said. At Janus, which has $34 billion in total assets in all of its fixed income funds, Gross will run a much smaller $12.9-million fund.
“Those institutions have to have somewhere else to go – it’s not like they can pull $100 million out of Total Return and just send it over to Janus,” Schwarz said. “Some might get nervous and move, but it really depends on how much they believe Bill Gross is responsible for the performance of the fund.”
Gross, 70, resigned over “fundamental differences” about the direction of the Newport Beach company, according to a curt statement from Pimco Chief Executive Douglas Hodge.
Late Thursday, Pimco said it had named Daniel Ivascyn – one of six deputy investment chiefs – to succeed Gross as chief investment officer for all Pimco funds. Ivascyn’s $38-billion Pimco Income Fund has beaten 99% of its rivals over the last five years.
Three of Ivascyn’s fellow deputies -- Mihir Worah, Mark Kiesel and Scott Mather -- will take over managing the Total Return Fund, Pimco said in a news release.