PIMCO is moving to calm investors, and Janus is busy wooing them Monday — after Friday’s bombshell news that Bill Gross left PIMCO, which he co-founded, to work as a portfolio manager at Janus.
But exactly how the two firms’ efforts will play out is highly debatable, experts say. Both groups could see their expectations fall short.
“We see quite big uncertainty about the sustainability of PIMCO earning[s], as [it] will take time to see how many clients will switch from PIMCO to Janus as a result,” wrote Thomas Seidl of Bernstein Research, in a note released Friday.
Outflows at both fund shops have been sizeable for some time.
According to Morningstar, Denver-based Janus had outflows of $658 million in August, $1.3 billion in July and August, $5.3 billion in the first eight months of the year, and $8.7 billion over the 12 months ended Aug. 31.
For its part, Newport Beach, Calif-based PIMCO had outflows of $2.2 billion in August, $3.7 billion in July and August, $34.5 billion year to date (through Aug. 31), and $63.2 billion in the last year. (Also last week, the SEC said it was investigating how PIMCO values bond holdings in the Total Return ETF (BOND), which has about $3.6 billlion in assets).
Morningstar ranked PIMCO as the fifth-largest fund group based on assets of $519 billion as of Aug. 31, while Janus came in 22nd with $102 billion.
Seidl forecasts asset outflows at PIMCO of 10% and 30%. “We would expect a good deal of PIMCO clients switching to Janus, simply attracted by the long track record of Bill Gross,” he explained.
In addition, the research analyst is bearish on parent-company Allianz’ ability to manage the fund group. “We have always argued that Allianz is not the best owner of PIMCO and should have long IPO-ed the asset manager,” Seidl said. “Mr. Gross’ departure supports our view…”
The analyst says, in general, that synergies between insurance firms and asset managers are “rather limited;” hence, there is “no need for an insurance company to own an asset manager.”
Plus, organizational issues have hurt the Allianz-PIMCO relationship, he says. “Driven by shareholder pressure … Allianz has tried to exercise more control, and this appears to have backfired now.”
Allianz and PIMCO, of course, emphasize the stability of the relationship and their support of Daniel Ivascyn, who was tapped to become PIMCO’s group chief investment officer late Friday.
“Since becoming part of the Allianz Group in 2000, PIMCO has grown enormously and contributed consistently to Allianz’s success,” said Allianz Group CEO Michael Deikmann, in a statement at the time.
“The management and investment structure put in place in January, as well as the thorough succession planning, gives us complete confidence in PIMCO’s executive leadership team,” he continued.
But some analysts think investors are likely to disagree and to place their bets with Gross.
Under Gross’ leadership, Janus’ fixed-income operations could grow to $65 billion to $70 billion from $31 billion, according to a recent report issued by Craig Siegenthaler of Credit Suisse. He also says Gross may “significantly improve” the fund group’s organic growth rate through higher bond inflows.
Mixed Views, Inertia
But others think investors may be slow to jump onto the Janus bandwagon. Plus, they note, Janus’ results are more dependent upon its equity products, which continue to experience outflows, according to Neal Epstein of Moody’s.
n a research note, the analyst says that it is likely to take “a considerable amount of time and success” before a new fund or two managed by Gross can make “a meaningful contribution” to the fund family.
Janus executives, however, remain upbeat. “With Bill leading our global macro efforts and Gibson [Smith] our credit-based fixed income team, I am confident Janus will be able to meet the needs of virtually any client,” CEO Richard M. Weil explained in a statement Friday.
But big flows of assets in the fund business aren’t likely to come as fast as some players might expect, cautions one expert.
“In general, funds aren’t held like stocks, especially those that are big or that are on platforms that are big” in terms of asset size, explained Scott Burns, global director-manager of research for Morningstar, in an interview with ThinkAdvisor.
Many investors holding shares of PIMCO’s Total Return Fund or ETF hold these assets in 401(k) accounts or own them as part of their funds-of-funds holdings.
“Most funds and assets in them sit behind an institutional or intermediary gatekeeper,” Burns said. “All of these funds are not held my mom-and-pop traders who move money around at home in their pajamas.”
Furthermore, to boot PIMCO off of or add Janus to a platform is no quick task. “It’s a process that involves doing research, going to an investment committee, then going to the board and ultimately communicating the decision to investors.”
Of course, money could move faster if it’s managed by a pension fund or investment advisor “who can make snap decisions,” he acknowledges, “and there will be activity in those spaces.” In general, though, there’s lots of inertia in the fund industry, he adds.
Plus, “Gross is not being replaced [at PIMCO] by just some guys off street. We are talking about Morningstar fixed-income managers of the year,” Burns stressed.
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