Advisers eyeing Pimco carefully in wake of upheaval

Most taking wait-and-see approach, watching performance, exit door

Feb 28, 2014 @ 11:04 am

By Liz Skinner

Financial advisers are among those watching Pacific Investment Management Co. closely to see if the fund giant's recent management upheaval masks broader problems that could impact performance.

Last month's revelation that Pimco's co-founder Bill Gross and its exiting chief executive and co-chief investment officer Mohamed El-Erian quarreled in the months that led up to the storied fund manager's resignation in January further piqued professional concern. Mr. El-Erian plans to leave the Newport Beach, Calif.-based fund company later this month.

“Management transitions are always a difficult thing, and it's something we pay attention to,” said Armond Dinverno, president of advisory firm Balasa Dinverno Foltz. “I think they'll sort it out and hopefully they'll learn something through it.”

Mr. Dinverno's firm has about $2.8 billion in assets under management, including investments with the $2 trillion Pimco. So far, his advisers aren't moving out of the funds, but they are following developments and paying especially close attention to performance.

“For now we're staying with what we have,” Mr. Dinverno said.

(Don't miss: InvestmentNews senior columnist Jeff Benjamin on the Pimco power shift.)

Paul Taylor, owner of Capital Advisory Group, said he doesn't think Mr. El-Erian's departure alone will have an impact on performance. However, he'll be watching closely to make sure a flood of other Pimco fund managers do not follow Mr. El-Erian out the door.

“If managers leave, that will be a signal,” Mr. Taylor said. “If [Mr.] Gross left, that would be a run for the hills.”

All the money Mr. Taylor's clients have with Pimco right now is in short-term investments because he's worried about rising interest rates. His firm oversees about $55 million for clients.

“We want to see what happens with interest rates as the government stops with quantitative easing,” he said.

Russel Kinnel, director of mutual fund research for Morningstar Inc., said Pimco still has “very good” fund managers and a culture of investing excellence. However, the company's “pressure cooker” culture is something that Morningstar is watching.

“It's not like the cupboard is bare, but that's not to say there's nothing to worry about,” Mr. Kinnel said. “It's long been a place with a little more turnover than you'd like to see.”

Among those who have left the company, it's common to hear that they “hated” working there, even though they were paid well and believed they were working with many smart people, Mr. Kinnel said. Pimco, which is owned by German insurer Allianz SE, needs to improve its work culture, he said.

“It's hard to attract and retain top people if it's just a difficult place to work,” Mr. Kinnel said.

A Pimco spokesman, Mark Porterfield, declined to make executives available for an interview.

“Our culture is one where we demand the very best of ourselves every day because that is what our clients expect and deserve,” the firm said in a statement. “We value our partnership with financial advisers and will continue to work relentlessly on their behalf.”

Morningstar ranks Pimco's Global Multi-Asset Fund (PGAIX), which Mr. El-Erian oversaw, as neutral, and has since last November. Pimco's Total Return Fund (PTTRX), the world's largest fund with $151 billion in assets, has been ranked a top-rated “gold” fund since Morningstar began using the metals-based scale in November 2011.

Mr. Kinnel said Morningstar is taking a lot of time talking to managers and other professionals at Pimco to examine all the firm's funds, because the departure of Mr. El-Erian, who had been in line to take over the company, could impact the decisions of others at Pimco.

“A thing to watch will be if there are continued departures because those can really add up over time,” Mr. Kinnel said.

Mr. Gross has named six deputies since Mr. El-Erian announced his departure from the company, which last year suffered $30 billion in net outflows, compared with $62.7 billion in net inflows in 2012.

In terms of performance, the Pimco funds, on average, finished 2013 in the 63rd percentile, down from the 43rd percentile in 2012, and the 42nd percentile in 2011.

In the past, Mr. Gross has pointed out that Pimco has delivered “superior results” for clients for more than 40 years and that he only asks of others “what I demand of myself: hard work, dedication and intense focus on putting our clients first.”

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