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PIMCO Imposes Redemption Fee to Deter Market Timing

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NEWPORT BEACH, Calif. (–Pacific Investment Management Co. LLC, stung by allegations it allowed market timing of its mutual funds, will institute a 2% redemption fee on short-term transactions in nearly all its funds beginning June 15, according to Securities and Exchange Commission filings.

Only PIMCO’s Money Market Fund will be exempt from the redemption fee.

In its filing, the company said the 2% fee is meant to serve as an additional deterrent to “abusive” and “excessive” trading.

“The trust discourages excessive trading made in response to short-term fluctuations in the price of fund shares, as well as other abusive trading practices that … may disrupt portfolio management strategies and harm longer-term shareholders,” company officials said in the filing. “In an attempt to further deter abusive trading, and to enable each of the funds to offset the potential trading and other costs … the trust is implementing redemption fees on each of its publicly offered Funds.”

Different PIMCO funds will determine when to apply the redemption fee based on various minimum holding periods ranging from seven days to 60 days, according to the filing. The redemption fee will be equal to 2% of the value of the shares being redeemed or exchanged.

In February, the New Jersey Attorney General filed a lawsuit against PIMCO and its parent company, Allianz Dresdner Asset Management of America LP, alleging the company allowed hedge fund Canary Capital Partners LLC, Secaucus, N.J., to conduct late trading and market timing of PIMCO mutual funds (see Previous HedgeWorld Story). Subsequently, PIMCO officials indicated the SEC might be considering filing charges in relation to alleged market timing.

Shortly after New Jersey officials announced civil charges against PIMCO, the firm’s chief investment officer, Bill Gross, said in a letter to clients that while his company’s relationship with Canary was “unfortunate,” none of the trades at issue hurt shareholders (seePrevious HedgeWorld Story) and they did not violate any of the protections built into the funds’ prospectuses.

Ken Corba, the PIMCO Equity Advisors chief executive whose email complaining about Canary’s trading practices was cited in the New Jersey Attorney General’s complaint, resigned from the company last week, according to published reports.

A PIMCO spokesman did not return a call seeking comment by press time.

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