NEWPORT BEACH, Calif. (HedgeWorld.com)–Calling Pacific Investment Management Co.’s relationship with Canary Capital Partners LLC “unfortunate,” PIMCO Chief Investment Officer Bill Gross insisted in a letter to clients that the Secaucus, N.J. hedge fund’s trades never hurt shareholders in the bond firm’s mutual funds.
In his Feb. 19 letter, which was co-signed by PIMCO Chief Executive William Thompson, Mr. Gross said Canary’s trades, which were clearly labeled as so-called “timing” assets, were made through an agreement that did not violate the shareholder protection in PIMCO’s prospectuses.
Mr. Gross said PIMCO monitored Canary’s trades and that company officials believe Canary’s trading was infrequent and did not harm shareholders. Mr. Gross also said PIMCO never made any arrangements for Canary to invest so-called “sticky assets,” or money designated as long-term, in any PIMCO fund in exchange for the ability to market time, or frequently trade in and out of, PIMCO’s mutual funds.
“To the best of our knowledge, PIMCO has never had any arrangements pertaining to ‘sticky funds,’ late trading/stale pricing arbitrage or improper dissemination of fund holdings,” Mr. Gross wrote. “The investments we knew about … had monitoring provisions to prevent excessive trading. It apparently worked. To our knowledge, this Canary trading was infrequent, did not come close to violating the prospectuses and harmed no shareholders in the fund.”
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“In perfect hindsight, we wish we had never attracted [Canary] among our many thousands of loyal fund shareholders,” Mr. Gross continued. “But we can’t change that and if any investor in our funds was disadvantaged by this arrangement, then we want to give assurance we will make it up–in full.”
Messrs. Gross and Thompson sent their letter two days after the New Jersey Attorney General’s office filed a lawsuit against PIMCO’s parent company, Allianz Dresdner Asset Management of America LP, and three PIMCO units alleging the company allowed market timing in its mutual funds in violation of its prospectuses Previous HedgeWorld Story.