The flood of money out of Pacific Investment Management Co.'s
flagship Total Return fund slowed in May to its lowest level since
last fall's departure of star manager Bill Gross, people familiar
with the matter said.
Investors pulled about $3 billion in assets from the $110.4
billion bond fund last month, these people said. It was the fifth
successive month that outflows dropped, according to fund-research
firm Morningstar Inc., and the amount was the smallest since Mr.
Gross exited abruptly last September.
The slowdown is another sign that the money manager is
stabilizing after more than a year of turmoil at the firm. Some
clients that pulled money last year or placed the firm on internal
watch lists are returning to Pimco as Mr. Gross's successors post
stronger performance compared with rivals.
The fund, which invests in U.S. Treasurys and corporate bonds,
has returned 1.23%, including expenses, so far this year through
the end of May. Its benchmark, the Barclays U.S. Aggregate Bond
Index, returned 0.99%, according to a preliminary estimate from
Morningstar. Total Return is
beating 61% of similar funds.
Following internal strife with other executives last year,
including former Chief Executive Officer Mohamed El-Erian, Mr.
Gross left to run a smaller bond fund at rival Janus Capital Group
Inc. Mr. Gross co-founded the Newport Beach, Calif., firm in the
1970s, served as its chief investment officer and was its public
face across business media and through monthly letters to
investors.
The first full month after Mr. Gross's departure, investors
pulled $27.5 billion from the fund, setting a mutual-fund industry
record for the largest monthly outflow ever. In April, Total Return
ceded its title of world's largest bond fund to an index fund run
by rival Vanguard Group.
Since outflows began in May of 2013, investors pulled $182
billion from the Total Return fund over 24 consecutive months
before May, whittling its asset size down from a peak of $293
billion to $110.4 billion at the end of April. Official asset
figures for May aren't yet available.
The smaller outflows don't mean Pimco, a unit of Germany's
Allianz SE, is free of problems yet. Analysts have warned that fund
outflows could spike if performance drops or if the firm suffers
any more big-name departures.
Not all clients are convinced that Pimco has recovered, either.
The deferred-compensation plan for the city and county of Denver
pulled its investment in Total Return and moved it to the
Metropolitan West Total Return Bond fund earlier this year because
of "uncertainty about the future," of the fund, according to a
client memo reviewed by The Wall Street Journal.
A spokeswoman for the city's consultant didn't return a call for
comment.
Mr. Gross's departure from Pimco set off an aggressive,
all-hands-on-deck push by executives, portfolio managers and
employees to keep investors with the firm, people familiar with
their actions said.
That effort included hundreds of meetings with pension funds,
consultants and other institutional investors, as well as sometimes
weekly calls with some large clients, said investors and pension
funds.
The Total Return fund now has a three-person management team of
Scott Maher, Mark Kiesel and Mihir Worah and is overseen by group
Chief Investment Officer Daniel Ivascyn.
The moves have helped persuade some investors to stay. The
Teachers' Retirement System of the State of Illinois, a client of
Pimco's since 1982, removed Pimco from its "watch list" in May as
it became more comfortable with the portfolio-management team Pimco
put in place before Mr. Gross's departure. Illinois executives flew
out to see the firm in March at its headquarters, spokesman Dave
Urbanek said.
"There was a clearly defined line of succession that engendered
a lot of confidence," Mr. Urbanek said. The Illinois system has
about $2.5 billion, or about 5.5% of its total $45.6 billion in
assets under management as of March 31, with the firm.
One client that returned was the state of Wyoming, which in
recent weeks decided to recommit $150 million with Pimco and plans
to add more. Last year, it pulled about $900 million of its $2.7
billion investment due to uncertainty about the future of the firm,
according to state officials.
The decision came after multiple meetings and phone calls with
new Pimco leadership.
"We were very impressed with how they handled themselves," said
Mark Gordon, Wyoming's treasurer.
Fadi BouSamra, chief investment officer at the Metropolitan
Employee Benefit System for the city and county of Nashville,
Tenn., said he had many phone conversations and in-person meetings
with Pimco executives in Newport Beach, Nashville and New York
before the system decided to keep its more than $300 million
invested across Pimco's bond strategies.
"I have a great deal of respect for Bill Gross and what he
accomplished, but we also knew the team that was there and the
portfolio managers that we had," Mr. BouSamra said.
Write to Kirsten Grind at kirsten.grind@wsj.com
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