It hasn’t been a banner year, or even month, for PIMCO.
After investors yanked $2.3 billion in September from the investment giant’s cornerstone fund, the PIMCO Total Return Fund (PTTRX), the trend continues to hammer away at the fund, time and time again.
If you’re keeping score at home, it’s the 29th consecutive month of fund outflows from what Wall Street observers once saw as the planet’s biggest mutual fund.
Overall, fund assets have cratered in the past 30 months, from $293 billion in April 2013 to $95.5 billion this month.
Feeding the sell-off is a combo plate of issues, all regarded negatively by anxious shareholders. Fear of the Federal Reserve hiking interest rates, middling portfolio performance and the exit of longtime PIMCO co-founder Bill Gross (and the former manager of the Total Return fund) have investors heading to the exits - and those are all short-term reasons.
A recent history of conflict
There’s way more to PIMCO’s headaches than declining assets.
Prior to Gross’ departure, PIMCO is still feeling the backlash over the departure of former chief executive officer, Mohamed El-Erian.
Shareholders have long fretted over how El-Erian reportedly crossed the streams, in Ghostbusters lingo, with firm founder Bill Gross. The former reportedly accused the later of not treating employees well. Gross responded in classic Gross fashion – it wasn’t the employees he was trying to “treat better”, but the firm’s customers.
“I ask of others only what I demand of myself: hard work, dedication and intense focus on putting our clients first,” Gross said in a statement to The Wall Street Journal http://online.wsj.com/news/articles/SB1000142405270230363640457939313143036124, just prior to El-Erian’s departure.
While that situation rocked PIMCO shareholders, it amounted to a roman candle compared to the powder keg that detonated afterwards. First, Gross left the firm shortly afterward to join the Janus Capital Group, amidst mounting tensions among the mutual fund firm’s managers over the direction Gross was taking the company.
Stung by the outlash, Gross moved on to Janus, although he still hasn’t gotten over the way he was shown the door, or the amount of money he was apparently denied in bonuses by PIMCO after the door closed behind him.
That has led to a $200 million lawsuit filed by Gross against PIMCO alleging so many transgressions against the so-called “Bond King”, it makes happy hour at the Kardashians look like an episode of “Full House."
This is from the 37-page lawsuit:
- Gross accused PIMCO of “breach of contract” and “improper, dishonest, and unethical behavior (by PIMCO executives), which must now be exposed.”
- According to Gross, PIMCO managers were “driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency.”
- Gross also said that his former management team “conspired” to drive him out of PIMCO, in part to help themselves to a portion of his annual bonus, equal to 20% of the company’s profits.
- Gross was promised a bonus of around $250 million for 2014 at PIMCO. In his legal filings, Gross claimed he was “denied” his third-quarter 2014 bonus of $80 million, although he did depart the firm several days before the end of the quarter, which does go against PIMCO’s bonus policy, legal experts say.
PIMCO isn’t breaking a sweat, at least not yet, anyway. "Our legal team will be responding in court in due course,” the company stated this week. More telling, the stock market analytical firm Zacks Research says a PIMCO spokesperson said the lawsuit was a “personal matter related to Bill.”
A path away from PIMCO?
Consequently, with assets down in its flagship funds, and trouble brewing in the court of law, should investors steer clear of the $1.9 trillion mutual fund behemoth?
No, or at least not yet, anyway. Some clear-headed legal minds don’t think Gross has much of a chance on his lawsuit, which should help clear the air currently clouding PIMCO on the public relations front.
On the fund front, Zacks claims several PIMCO funds are already rebounding, including the Total Return Fund, which Morningstar pegs as outperforming other core bond funds by 62 basis points this year.
Then there’s PIMCO Income A (PONAX), which invests a minimum of 65% of its assets in fixed income securities from a wide range of sectors, with holdings that can include options, futures contracts and swap agreements. “While the year-to-date and one-year returns are 2.6% and 1.8%, respectively, the respective 3- and 5-year annualized returns are 5.8% and 8.1%,” Zacks states. Annual expense ratio of 0.85% is lower than the category average of 1.03%.
There’s a lot to absorb over at PIMCO right now, with depleting assets and a cantankerous billionaire former founder looking for a battle in court, in part to clear his name, and in part to reclaim money promised to him.
The Kardashians or not, for beleaguered investors, the news - and the outlook for PIMCO - isn’t as bad as it seems right now.
