The Orange County Employees Retirement System, located only 12 miles from the Pacific Investment Company’s (PIMCO) headquarters in Southern California, found an “additional” portfolio manager to handle its domestic fixed income assets. The pension fund, with approximately $11.5bn in assets, has trusted Pimco Chief Executive Officer and Founder, Bill Gross to manage assets since the inception of its Total Return strategy in 1982. This is the latest in a series of restructuring initiatives that PIMCO has encountered since top investment analyst Mohamed El-Erian stepped down in the new year. The departure of El-Erian compelled clients and investment professionals to question the viability of the firm and its leadership.
Of its $1.3bn invested with Pimco, the California pension fund had allocated $582m in the Total Return vehicle, which has endured $52bn in withdrawals over the last 11 months. Though Pimco did not comment on the prospects of losing the California pension fund, a spokesperson for the firm noted that the asset manager has experienced “considerable interest from institutional and retail investors in fixed income strategies” in addition to its base bond investment vehicles. Nevertheless, worries continue to mount for Pimco, as the investment institution Columbia Management recently chose rival fund TCW over Pimco for a $1.3bn bond fund mandate. Moreover, the $28.6bn Indiana Public Retirement System also called in two Pimco commitments worth $50m and notified the fund that their remaining investments with the company were on watch.
Like the Indiana fund, other pension managers, including the Fresno, California, retirement fund and the $8.5bn North Dakota state pension plan, have relegated Pimco to a watch status since El-Erian resigned his position with the Newport Beach, California, investment company. Calpers, the world’s biggest pension fund, however, has not altered any of its investments with Pimco. A spokesperson there did note: “We are paying close attention to developments. Calpers staff has tremendous respect for the staff at Pimco and we are monitoring the issue and will keep our board aware of the changes.”
The uncertainty at Pimco has enabled competing firms to capitalize by receiving previous assets allocated to the Newport Beach firm. An executive at a substantial European fund said: “Our sales people are definitely taking advantage of the concerns over Pimco and are highlighting problems such as keyman risk and the issues presented by large blockbuster funds. We have definitely picked up money from Pimco as a result.”At the same time, Eric Jacobsen, a Morningstar analyst, believes the withdrawals from Pimco will stop if the asset manager can stop making headlines in the financial media. “If Pimco fades from the news and performance becomes less notable than it has been in recent months, I suspect that will be a positive for [the company],” he said.