Outflows from former Gross fund at Pimco send billions to rival firms
Investors poured billions of dollars during October into smaller rivals of Pacific Investment Management’s Total Return Fund, the enormous mutual fund once overseen by “bond king’ Bill Gross, who quit Pimco abruptly in late September.
Pimco Total Return wasn’t expected to disclose exact losses until Tuesday or Wednesday. But the flood of money into other funds indicated that a year’s worth of losses at the Newport Beach fund, which spiked in September, zoomed even higher in the last month.
As of Sept. 30, investors already had sucked out $46.3 billion in Pimco Total Return assets since October of last year. The 19% decline left $201.6 billion in the fund, according to Morningstar Inc. analysts.
The contrast was sharp with MetWest Total Return Fund, based in Los Angeles, where assets grew more than 57% since October 2013, from $25.7 billion to $40.5 billion.
Morningstar’s calculations showed that nearly $7 billion of the increase occurred in October.
The MetWest Total Return Fund, started in 1996 by Pimco alumni Tad Rivelle, Steve Kane and Laird Landmann, attributed its recent success in part to team play by the leaders, in contrast to the star-driven style at Pimco.
“We believe the strong flows into our fixed-income funds are a result of our team approach, heritage of that team, and outstanding performance,” MetWest, which is part of L.A. investment powerhouse TCW, said in a statement.
The total-return funds are what’s known in investment jargon as core-plus funds. These funds add investments with greater potential risks and returns, such as corporate junk bonds, distressed mortgage securities and the debt of emerging economies, to core holdings of investment-grade bonds.
Gross’ knack in adjusting the mix of such investments from the many individual bond desks at Pimco enabled him to beat the returns of rivals for decades before his record turned spotty the last few years.
That sent managers of large investment funds, including many entrusted with the retirement savings of millions of Americans, scurrying in search of substitutes.
The trend intensified when Pimco Chief Executive Mohamed El-Erian, an emerging-markets specialist who had also been co-investment chief at Pimco, resigned early this year amid reports that he had clashed with Gross.
Gross, 70, jumped ship amid reports that disgruntled Pimco executives had planned to force him out of the firm where he had worked since 1970. He has taken the reins of a small unconstrained bond fund at Janus Capital Group, which later this week will disclose how much money followed him.
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