Recent data released by bond giant Pimco on Tuesday, November 4th, shows that investors withdrew a total of $27.5 billion from its flagship Total Return fund in October. The Total Return is the world’s largest bond fund, but the once large gap between Pimco and its peers is now narrowing, especially in the face of stagnant American bond markets and the Federal Reserve’s emphasis on low interest rates. To date, Total Return trails 79 percent of its peers according to the Morningstar Ratings Company. TD Ameritrade Holding Corp, the largest discount brokerage, has pulled the Pimco Total Return fund from multiple asset-allocation models it uses for investors, instead recommending rival BlackRock Inc. ’s Total Return fund, according to people familiar with the decision. As part of the move, TD Ameritrade moved more than $600 million from Pimco into BlackRock’s fund. The move was made after a recommendation from Morningstar, which acted as a consultant and oversees thousands of client portfolios. Half of Pimco’s monthly outflow of $27.5 billion occurred within five days following the shock departure of its long time manager Bill Gross to Janus Capital. However, all those billions of dollars that have fled the Pimco Total Return Fund (PTTAX) since Bill Gross quit the firm in late September haven’t quite followed Gross to his new office. The Janus Global Unconstrained Bond Fund (JUCAX) has received $430 million in inflows since Gross took over that fund, the first time Janus has reported a monthly net inflow in more than three years. That sounds significant, until you compare it with the $51 billion that’s exited the Pimco fund in September and October, almost all of that after Gross’s departure. Instead, rival firms are taking in the lion’s share of that cash and essentially underscore the challenge Pimco now faces in terms of retaining the business of long-time investors in its funds. Pimco is also ramping up efforts to retain its top executives. The firm has decided to pay non-partners a special retention package, giving them additional deferred compensation, according to people familiar with the company’s plans. In my opinion, the coming months will be crucial for Pimco, as many large institutional investors and retirement plans are expected to make decisions about whether to stick with the company. Roughly $14 billion is still up for grabs in Connecticut, Illinois, New York, Massachusetts and Texas where public pension funds are debating what to do with their Pimco investments. The performance of Pimco in the near future will be interesting to watch.
-- Karan Magu Leonard N. Stern School of Business Class Of 2017