Layoffs hit Pimco, GMO as assets shrink amid flight from active management

The departures include top managers and the closure of some funds

Jun 17, 2016 @ 11:58 am

By John Waggoner

Layoffs have been scarce in the mutual fund industry, but they have hit two complexes recently: GMO and Pimco, which are suffering from declining assets as investors flee active management in favor of passive strategies.

Boston-based Grantham, Mayer & Otterloo has cut about 10% of its 650-person staff, according to Bloomberg. The layoffs include nine stock and bond analysts. The firm's assets have fallen about 20% in the past two years, to $99 billion, according to Morningstar.

In addition to the layoffs, several members of top management are leaving Jeremy Grantham's GMO. David Cowen, head of global equity, and Chris Fortson, head of fundamental research in global equity, will leave GMO at the end of the month.

Pacific Investment Management Co. is cutting its workforce and shutting down six funds with $260 million in assets. The Newport Beach, Calif.-based bond powerhouse will cut 68 jobs, or about 3% of the workforce, according to Bloomberg. Assets under management have fallen since the September 2014 departure of Bill Gross, who co-founded the firm in 1971 and built Pimco Total Return into the world's biggest mutual fund at its peak.

Among those let go include the entire dividend team, including Brad Kinkelaar, portfolio manager on the dividend strategy. Pimco will be exiting the dividend strategy for its funds and replacing it with its Research Affiliates equity income strategy. Pimco manages about $1.5 trillion.

The fund industry has seen enormous flight from more lucrative actively managed funds to passive index funds, squeezing profit margins. Actively managed U.S. stock flows saw an estimated net outflow of $18.7 billion in May, according to Morningstar, while passively managed funds saw a net inflow of $8.1 billion.

"I assume the coming years may experience a significant adjustment for smaller funds and many fund families — as costs continue to go up but growth and market gains are more elusive," says Avi Nachmany, senior advisor to Strategic Insight.

Adding to GMO's woes: Large-company value funds have seen a $29.8 billion outflow the past 12 months as the category has lagged large-company growth for more than five years.

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