Pacific Investment Management Co. had record redemptions from its biggest mutual fund in the first full month after the surprise departure of former manager Bill Gross, with clients pulling $27.5 billion in October.
Half of those redemptions from the PIMCO Total Return Fund occurred in the first five trading days of October and they then “slowed sharply,” according to a statement from the Newport Beach, California-based firm yesterday. The redemptions followed $23.5 billion in withdrawals from the world’s biggest fund in September and brought assets to $170.9 billion, down 42% from a peak in April 2013.
“This could easily go into the first quarter before you see the flows ebb,” said Michael Rosen, chief investment officer at Angeles Investment Advisors LLC in Santa Monica, California, who oversees $47 billion for endowments and pensions. “There’s a fair amount up for play over the next few months or so.”
PIMCO has hired back three high-profile names in recent weeks as it seeks to reassure clients rattled by Gross’s Sept. 26 departure. Investors are reviewing their allocations, moving money to competitors such as Vanguard Group Inc. and DoubleLine Capital LP or parking it in money-market funds and exchange- traded funds while they reevaluate.
The largest daily redemption in September came the day of Gross’s departure, PIMCO said Oct. 1 in a statement.
Total Return isn’t increasing cash-like holdings in the fund to meet redemptions, Scott Mather, one of three newly appointed managers, said in October.
The fund had a 53% cash position as of Sept. 30, and a 51% offset related to derivatives including futures and swaps, according to the firm’s website. Ten percent of its holdings were invested in emerging markets, 20% in mortgage-related securities and an additional 13% in U.S. credit.
Gross had relied on derivatives to juice returns in the second quarter, replacing most of the $48 billion of U.S. Treasuries in Total Return with about $45 billion of futures, according to an August filing. The contracts require small up- front payments, freeing up money for the fund to invest in higher-yielding securities including Brazilian, Spanish and Italian debt.