Pacific Investment Management Company (PIMCO) has seen a massive outflow of investor funds since Bill Gross left abruptly in September 2014. Gross went to work for competitor Janus after his working relationships soured at PIMCO.
PIMCO is a large global investment firm. It had around $1.52 trillion assets under management (AUM) as of June 2015. Despite investors pulling their money, its flagship Total Return Fund has performed reasonably well since the exit of Gross. PIMCO's other funds have had mixed performances.
Gross founded PIMCO in 1971 with an initial $12 million in assets. He started the Total Return Fund in 1987 and successfully built it into the largest mutual fund in the world. The fund grew to as large as $293 billion in AUM in April 2013. The fund lost its crown as the largest mutual fund in October 2013.
Gross beat the fund's benchmarks several times over the years. The fund performed very well during the financial crisis of 2008 and 2009. Gross was very visible, with frequent media appearances. The combination of the strong performance and high visibility led to the growth of the Total Return Fund and made Gross very wealthy personally. His personal wealth is estimated at $2.3 billion.
Gross's Exit From PIMCO
The Total Return Fund did not have a very good performance in 2014. Investors were starting to pull money from the fund as the entire bond market was under significant pressure. Employees at PIMCO were likewise under a significant amount of pressure. Mohamed El-Erian was the chief executive officer (CEO) and co-chief investment officer (CIO) of PIMCO and a very respected member of the international finance community. He was also very visible in the media. There were rumors that the working relationship between El-Erian and Gross was deteriorating.
They had begun to argue openly, which was unusual. El-Erian left PIMCO in March 2014, though he remained on the management committee of Allianz, PIMCO's parent company, despite his departure. There were also reports that Gross was beginning to act erratically. He even discussed the death of his cat in a strange letter to investors.
Gross left PIMCO in September 2014. He suddenly announced his departure and said that he was joining Janus. It was rumored that Allianz was planning to replace Gross because of his issues working with others. Gross jumped the gun before he could be replaced.
PIMCO and Total Return Outflows
Investors began pulling their money in droves once the departure was announced. Even though PIMCO moved quickly to install new leadership and took steps to soothe the fears of investors, they were understandably nervous that the fund's iconic founder had left the firm under a cloud.
PIMCO's total assets dropped by 15% from September 2014 to March 2015. The Total Return Fund lost around $180 billion in assets from mid-2013 to May 2015. The fund went below $100 billion in assets in September 2015 for the first time since 2007. Other large bond funds at PIMCO also saw substantial outflows. The Vanguard Total Bond Market Index Fund is now the largest bond fund, with $147 billion in assets as of December 2015.
PIMCO Fund Performance
The major funds at PIMCO have had mixed performances since the exit of Gross. The Total Return Fund returned 0.89% versus its benchmark return of 0.88%. The Unconstrained Bond Fund has not performed that well; it had losses of -2.21% in 2013. The fund returned 2.79% in 2014 versus the benchmark of 0.24%. The fund underperformed again in 2015 with losses of -2.1% versus the benchmark of 0.26%. It has an expense ratio of 0.9%, which is high, considering that the fund is consistently underperforming.
On the other hand, the PIMCO Income Fund has performed quite well over the past few years. The fund returned 4.8% in 2013 versus the benchmark return of -2.02%. The fund performed even better in 2014 with a return of 7.18% versus the benchmark of 5.97%. In 2015, the fund had returns of 3.54% versus the benchmark of 0.88%. The fund has increased its AUM to around $49.5 billion as of October 2015.