Investors pulled a record $23.5 billion from Pacific Investment Management's Total Return Fund in September, the month "bond king" Bill Gross quit, intensifying the outflows that began last year after returns turned spotty at the enormous mutual fund.
It was the largest monthly decline in net assets ever recorded at Total Return, long the flagship of the Newport Beach-based Pimco funds. The largest outflow occurred Friday, Pimco said, when Gross announced he was joining far smaller rival Janus Capital Group. His departure came after clashes with other Pimco executives.
Pimco's news release Wednesday sought to calm fears of a mass rush for the exit from Total Return. It said it was confident investors would support its scores of other bond funds.
At its present size, Total Return has about $200 billion in assets — a little more than a 10th of the nearly
$2 trillion that remans invested with Pimco. In a news release Wednesday, the firm said investors remained confident overall in the company, citing net inflows of $6.5 billion into the Pimco Income Fund this year.
"The core fixed-income market, in which the Total Return Fund invests, is one of the largest and most liquid markets in the world, trading on average $700 billion of securities a day," Pimco said. "The fund is well positioned to meet potential redemptions."
That assessment was echoed by bond analysts, who said that the Total Return Fund, which Gross had managed personally, had many holdings that could easily be sold to pay off the investors cashing out.
The Total Return Fund, a staple of U.S. retirement funds, had already seen $67 billion in outflows from April 2013 through August as investors digested a performance that one trustee of the fund called "mediocre." The performance suffered from a wrong-way bet by Gross in 2011 on the market for U.S. Treasuries.
Gross previously had done so well that research firm Morningstar named him the fund manager of the decade in 2010. This week, however, Morningstar downgraded its rating of Total Return from gold to bronze, citing uncertainties in the aftermath of Gross' departure.
Pimco Income Fund is headed by Dan Ivascyn, a star trader who was named to replace Gross as the firm's chief investment officer. His fans include Jonathan R. Foster, chief executive at Angeles Wealth Management, which has its money in Ivascyn's fund and other Pimco offerings — but not the Total Return Fund.
"The performance of the other managers has been truly exceptional," said Foster, who manages $47 billion in funds from institutional investors. "We have great confidence that they will do just fine. We are still committed to the organization. And there's been a little too much optimism around how Janus is going to do."
Other investors expressed more skepticism.
"We're obviously looking at our investment options and we are moving assets away from Pimco," said Shannon Eusey, president and co-founder of Beacon Pointe Advisors in Newport Beach, which has more than $7 billion in assets under management.
"There's been quite a bit of management turnover over the last few years, and that's given us pause," Eusey said, a reference to the abrupt departure of Gross' hear apparent, Mohamed El-Eriam, from Pimco early this year.
El-Erian and Gross were said to have clashed, at times harshly, in front of other employees.
"It's automatically a red flag to us," Eusey said. "It makes you wonder what's going on internally, whether they're losing sight of the investments."
Scott Burns, Morningstar's global director of manager research, said at least a third of Total Returns assets are highly liquid Treasury securities and other holdings that can be easily sold into large markets. What's more, Burns said in an interview, the fund has substantial additional cash and income from the bonds it owns.
Star bond trader Jeffrey Gundlach at DoubleLine in Los Angeles noted that last month's runoff from Total Return amounted to more than 10% of its assets, most of that in the last three days.
"I wouldn't be surprised if that number happens again," he said in an interview.
Gundlach said DoubleLine had net inflows of $1.65 billion last month.
"That money likely came from Pimco," he said, "though we don't know that with certitude."