Deal Would Lower Pimco to No. 2 in Bonds
In the fixed-income fund management business, Newport Beach-based Pacific Investment Management Co. is about to lose its crown.
The firm, now the largest U.S. bond and money market fund manager in total assets, will be No. 2 if BlackRock Inc. and Merrill Lynch & Co. follow through on the business combination they announced Wednesday.
The deal would leave BlackRock with $623 billion in bond and money market assets based on year-end 2005 totals, compared with $594 billion for Pacific Investment Management, better known as Pimco.
Pimco has reigned for years as the top U.S. manager of fixed-income assets. Its chief investment officer, Bill Gross, is the public face of Pimco and perhaps the world’s best known expert on bonds, thanks to his frequent appearances on CNBC and his widely quoted commentaries.
The company’s introductory website page says simply: “Pimco The Authority on Bonds.”
Of course, to Pimco’s many institutional and individual-investor clients, whether it’s No. 1 or No. 2 in asset size is irrelevant. What matters are the investment returns the company generates.
Gross’ management of the Pimco Total Return fund, the single largest U.S. bond mutual fund, produced an average annual total return of 6.6% in the five years ended Dec. 31, according to Bloomberg News data. That compares with 5.8% for BlackRock’s Core Bond Total Return fund. (Both figures are for institutional-class shares.)
The BlackRock-Merrill combination “does not mean there’s additional pressure for us to get bigger or to add product lines,” Bill Thompson, Pimco’s chief executive, said in a statement. “Our goal is not to be the biggest but the best.”
Still, “just the recognition of BlackRock’s size could serve to distract from Pimco’s eminence,” said Eric Jacobson, fixed-income fund analyst at Morningstar Inc. in Chicago.
As the largest bond manager, Pimco has been the benchmark against which other managers are measured, Jacobson said. That could change with BlackRock’s ascent, he said.
Both firms offer an array of fixed-income investment options, including portfolios that own government, corporate, municipal and foreign bonds.
BlackRock, which had ranked as the third-largest bond manager, will gain economies of scale by adding Merrill’s fund management assets, said Ben Phillips, a managing director at New York-based Putnam Lovell NBF Securities. That scale could help BlackRock in keeping its fund management fees competitive -- no small issue with investors at a time when low interest rates are depressing bond returns, Phillips said.
Pimco, meanwhile, has the advantage of a deep-pocketed parent: Allianz, the German insurance giant. Including Pimco’s assets, Allianz was the world’s second-largest money manager in 2004, with $1.4 trillion in all. UBS was No. 1, with $2 trillion.
Longer-term, New York-based BlackRock and Pimco are expected to go head-to-head in competing for an anticipated avalanche of money into bonds, as aging baby boomers seek more conservative, income-generating investments.
