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Rivals look to cash in on Pimco strife

Rivals look to cash in on Pimco strife
Bill Gross poses for a photo in New York on May 16, 2011. (Scott Eells / Bloomberg)

The departure of bond-trading wizard Bill Gross from his Newport Beach firm has spilled blood into the normally placid waters of fixed income securities.

Competition in the mutual fund business exploded this week as rivals sparred for a share of the billions of dollars flowing out of Pacific Investment Management Co., which commands $2 trillion in investments. .

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Gross, known on Wall Street as the "bond king," stirred up the industry last month when he quit — after clashing with other Pimco executives — to run a comparatively tiny portfolio for Janus Capital Management. Investors responded by pulling $23.5 billion from Pimco's Total Return Fund, which Gross had personally managed.

Now, rival funds descending on the newly liberated money like sharks chasing chum.

On Friday, a Google search for "Bill Gross" produced three paid ads atop the regular links — for funds operated by BlackRock Inc., JPMorgan Chase & Co. and OppenheimerFunds Inc.

"Concerned about fixed income? Now is the time to rethink your bonds," said BlackRock, the world's biggest money manager.

"Rethinking your client's bond strategy?" JPMorgan Asset Management asked.

Those statements, on the front pages of the firms' websites, were part of a barrage of come-ons from money management firms, which handle investments for everyday employees with 401(k) funds, high-net-worth individuals, enormous college endowments and a host of other clients.

"Everyone with a decent bond fund has come out of the woodwork with emails, calls and conference calls," said Mark Wilson, chief investment manager at the Tarbox Group, a wealth management firm in Newport Beach.

Tarbox had begun liquidating its $25-million investment with Pimco well before Gross quit.

Concerns of its clients had added to the firm's own misgivings about Pimco's management turmoil and the uneven performance of the Total Return Fund, said Tarbox President Laura Tarbox.

She said the firm had accelerated its withdrawals of funds from Pimco but had not finished the process when the news of Gross' exit shook the financial world.

"We'd have looked smarter if we had completed it earlier," Tarbox said.

Gross himself joined the rumble on Friday morning, when Janus Capital Group, his new employer, announced in an emailed invitation to prospective clients that the bond king and Janus Chief Executive Dick Weil would field questions on a conference call.

The call is expected to include an outlook on global markets from Gross and a discussion of the planned strategy at the Janus Global Unconstrained Bond Fund.

Gross will run the relatively small fund — it had just $13 million in assets at last report — from a new office two blocks from Pimco's headquarters, adjacent to Newport Beach's tony Fashion Island mall.

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Pimco has been reaching out, with its new top executives appearing on CNBC with well-rehearsed sound bites.

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"We're moving forward," Chief Executive Doug Hodge said several times. "Our clients are committed and they're loyal."

Representatives further down the hierarchy have been at work as well.

A week ago Friday, the day Gross' departure was announced, a Pimco representative called the Tarbox Group to discuss the depth and strength at the firm and make sure the investment team there saw Pimco's news release seeking to reassure clients.

In the week that followed, Pimco has "had several conference calls," Wilson said. "They are doing a good job on this front."

Two of the calls were about the Pimco flagship fund that Gross had personally managed — the Total Return Fund, which once approached $293 billion in assets, but which has fallen to less than $200 billion.

Of course, Pimco is still the largest bond concern by an order of magnitude.

While there are many ways to measure, Morningstar puts its business at handling separate accounts for institutions — a huge chunk of the business — at more than $853 billion, more than four times as much as its nearest competitor, San Mateo-based Franklin Templeton Investments.

The Pimco executive named to replace Gross as chief investment officer, Daniel Ivascyn, is one of three portfolio managers at the $18 billion unconstrained fund, which saw outflows of more than $3 billion in September.

In comments emailed to The Times, Wilson expressed surprise that Gross, who for years has been a fixture talking head on financial news networks, "is not on every media platform talking about his new venture."

"This seems like a missed opportunity as [right or wrong] there will be dollars that flow out of Pimco to other solid firms," Wilson said.

Big Wall Street firms have mobilized to try to take advantage of Pimco's moment of vulnerability.

"It's a wake-up call," says an executive at large competitor. "Anytime there's a manager departure, there's money in motion. Competition heats up."

While some may try hard-sell scare tactics with jittery retail clients, sophisticated institutional investors are generally slower moving and require a subtler approach, said an executive at another large New York-based Pimco competitor.

Something along the lines of, "We understand you probably looking for answers — here are some possible solutions," the executive said.

At JPMorgan Chase's asset management unit, one of the largest in the category, money has been flowing into its fixed-income funds lately, including its Core Bond Fund, which competes directly with Pimco's Total Return Fund, and another, larger, Strategic Income Opportunities Fund.

"We're certainly seeing increased interest, from our clients in talking about fixed income allocations," said JPMorgan spokeswoman Kristen Chambers. "However, this is not a five-day story, it's a very important and complex decision and not necessarily one that is made overnight."

Other probable beneficiaries of Pimco's problems include Santa Monica-based TCW, principally its MetWest Total Return Fund, which took in $1.6 billion just between Sept. 25, the day before Gross decamped, and Wednesday.

Los Angeles-based Doubleline, run by Jeffrey Gundlach — another charismatic fund manager in the Gross style — took in $1.1 billion, according Jeff Tjornehoj, head of Lipper Americas Research.

In the bond fund world, those are big numbers.

"Normally, those guys would be happy with a $50-million day," Tjornehoj said.

Twitter: @ScottReckard

Twitter: @deanstarkman

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