Record redemptions hit Pimco following Gross departure

Pimco’s flagship Total Return Fund has been hit by hefty redemptions following the abrupt departure of co-founder and fund manager Bill Gross

Bill Gross 1020px
Bill Gross. Pimco’s Total Return Fund has been hit by hefty redemptions following the departure of the fund manager 

Pimco’s bond fund, once the largest in the world, suffered from redemptions totalling $23.5bn in September, making it the largest amount to be pulled from the fund in a single month in more than a year. That brings the total outflows for 2014 up to $50bn and sees the fund having dropped from $290bn in 2013 to less than $200bn.

The fund is well positioned to meet potential redemptions – Pimco

The unprecedented departure of the fund’s co-founder and Chief Investment Officer Bill Gross sparked an immediate and abnormally high succession of outflows. The Wall Street Journal reported redemptions reached $10bn after the news of his exit, with outflows then slowing after the first few days, according to Pimco.

Morningstar consultancy downgraded the fund’s rating from Gold to Bronze. Eric Jacobson, Senior Analyst in Active Strategies, said the downgrade “reflects Morningstar’s high level of confidence in Pimco’s resources and overall abilities but also the uncertainty as to exactly how all of these parts will mesh in the wake of Gross’ departure”.

Competitor funds have felt the benefits, with DoubleLine reported to have received a boost of $800m from new investors over the space of three days. Rival Vanguard was even rejecting investment offers to ward off those only in it for the short-term.

Investors had been pulling money from the fund since the Federal Reserve’s announcement last year that it would tighten monetary policy.

Pimco said it was able to cope with outflows, commenting in a statement: “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 $700bn of securities a day”. It added: “The fund is well positioned to meet potential redemptions, and short-term cash management is an area of expertise and strength at Pimco.”

But analysts believe that more money may soon be pulled from the fund. Pimco’s new managers have been discussing the matter in conference calls with investors in an attempt to stabilise the situation.