Pimco sees $23.5 billion fly away after bond king Gross’ exit

Since Bill Gross, known as the ‘Bond King’, resigned from Pimco, a total of $23.5 billion in funds has left the American global investment management firm. Pimco founder, Mr. Gross, joined Janus Capital Group Inc. in September, where he now heads a newly created bond fund.

Since exiting Pimco, its flagship Total Return bond fund has been shaken by the largest capital flight in its history. So far, it has lost more than 10% of its assets. Mr. Gross is the Pied Piper of bond investors, wherever he goes they tend to follow.

According to Pimco, the outflows surged within hours of Mr. Gross’ resignation. The company has been trying to allay investor concerns. It has brought in three new managers at the Total Return fund, the world’s largest bond fund.

Pimco, a subsidiary of the German insurance company Allianz, added, however, that during the two days following Gross’ resignation outflows were significantly smaller.

Bill Gross, the ‘Bond King’, left Pimco to join Janus.

In a statement, Pimco said:

“The core fixed income market in which the Total Return Fund invests is one of the largest and most liquid markets in the world, trading on average $700bn of securities a day. Moreover, the fund is well positioned to meet potential redemptions. Short-term cash management is an area of expertise and strength at PIMCO.”

Pimco’s woes have been a blessing for rivals such as DoubleLine Funds and Vanguard, which have enormous holdings in assets such as mortgage-backed securities and US Treasury bonds.

Billions of dollars from Pimco’s investors are finding their way into rival companies, vividly demonstrating how sensitive such funds are to changes in the management team.

Pimco, which has been closely watched by regulators, has seen 17 consecutive months of capital outflows, during which it has been fraught with management shake-ups.

Mohamed El-Erian, Pimco’s co-chief investment officer, resigned after bitter management infighting.

Investors could not have been too happy last week when it was revealed that the Securities and Exchange Commission had launched a probe into Pimco’s, which is suspected of artificially inflating returns.

Since May 2013, more than $70 billion has left Pimco.

The dangers of relying on key personnel

Unlike a nuclear power station or hotel group, a mutual or hedge firm’s value is tied up in the talent of its personnel, rather than bricks and mortar. If a “key man” or “key woman” leaves, the company is exposed to capital flight.

Some firms have tried to foster a ‘team culture’ in their strategy to protect themselves, while others have tried tying up key personnel in cast-iron contracts.

Key personnel refers to employees who are vital for a company’s well-being.

Even Pimco’s parent company, the insurance giant Allianz, saw its value plunge by $5 billion on the day Gross resigned. Gross’ new employer, Janus, on the other hand, experienced a jump in share price of nearly 40%.

Video – What does Gross’ exit from Pimco expose?