money black hole

Pimco Continues to Bleed Cash

money black hole

Since the departure of Bill Gross from Pimco on September 26th, its flagship Total Return fund has suffered investor withdrawals of $51 billion, according to this excellent Wall Street Journal article by Kirsten Grind. For the month of October, $27.5 billion departed, and it continues to average about $1 billion per day according to Morningstar analyst Tim Strauts. Grind writes that Pimco executives have prepared for up to $100 billion in client outflows, and some within the firm have said the final amount could be higher. This makes sense since according to this Reuters article on CNBC.com, Pimco has already lost $73.8 billion across all its funds for September/October. Ms. Grind cites an additional $14 billion that is in play as several state pension funds are debating their current Pimco holdings. TDAmeritrade replaced Pimco Total Return with BlackRock Total Return in its asset allocation models recommended to clients and has already moved $600 million from Pimco to BlackRock. Prudential made a similar move in its $6.2 billion Advanced Strategies Portfolio, according to this Bloomberg article. Pimco Total Return’s assets now stand at $171 billion, compared to $222 billion at the time of Gross’s departure.

So our question is, to paraphrase the late folk singer Pete Seeger, “Where have all the dollars gone?” The immediate logical choice is Gross’s new fund at Janus, the Global Unconstrained Bond Fund, but it has only picked up about $67 million, barely a pimple compared to $73.8 billion. What we find especially interesting is that the market now values Janus at $660 million more than what it was worth on the day prior to Gross’s announcement. On the day after Gross’s announcement, the increase was initially $900 million but it has pulled back after the initial euphoria died down. Since there is no possible way that each dollar of new assets to Janus is worth an additional ten dollars in valuation, the market appears to have an expectation that some current and former Pimco investors will take a wait-and-see approach before placing their money with Janus. On the other side of the coin, Mr. Market has cut the valuation of Allianz (Pimco’s parent company) by about $8 billion, or by $1 for every $10 of departed assets, the inverse of what it has done with Janus.

We can definitely surmise that a chunk of the missing $73.8 billion has gone passive. Vanguard reported an $8.8 billion increase for September/October in its Total Bond Market Index Fund (triple what it received over the same period in 2013), according to this article on moneynews.com. For all of its funds combined, Vanguard received $39.7 billion in the two-month period. Of course, Vanguard runs some active funds, but according to the Morningstar Fund Flows Report, Vanguard’s active funds only got about 12% of their total inflows for the month of September. The September inflows for the three passively oriented companies of BlackRock (iShares), SPDR State Street Global Advisors, and Dimensional Fund Advisors were $12.1 billion.

While we may never solve the mystery of the vanishing billions from Pimco, we do intend to keep our eyes and ears open, and we will let you know what we learn.