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Monday, September 29, 2014

Gross Puts Money in Motion

News summary by MFWire's editors

Everyone knows that Bill Gross' jump to Janus will put assets in play, the open question is how much. A second question is, will anybody at Pimco follow the bond king to Janus?

On Friday alone as much as $10 billion was redeemed out of Pimco's nearly $2 trillion of AUM, one Pimco source told the Wall Street Journal. That source added that Pimco insiders are prepared for as much as $100 billion to move.

That is a low estimate, according to a second Wall Street Journal article. Credit Suisse has the high estimate. Its analyst expects $279 billion in redemptions. Close behind is J.P. Morgan Cazenove analyst Michael Huttner, who guesses outflows of $225 billion, or as much AUM as is in Total Return. The low call is Commerzbank's $145 billion call.

Mr. Market initially expected worse. The WSJ report translates the 6.2% drop in Allianz' share price into a $400 billion dollar drop in AUM.

Bernstein Research analyst Thomas Seidl may be even more pessimistic than Mr. Market. He expects 10 percent to 30 percent of Pimco's assets to move. That means anywhere from $200 billion to $600 billion.

As would be expected, Pimco CEO Doug Hodge (and pretty much everyone else working for him) spent the weekend and Monday in damage control mode. That included calling on large investors and holding multiple conference calls. Those client visits and calls may last a while too, as Pimco's latest Form ADV shows it has 20,356 clients.

The WSJ article reported on a call that Hodge was on along with Allianz CFO Dieter Wemmer.

Hodge said that he "anticipates high redemption rates in the early stage" and that there is "ample liquidity to reply to any clients' redemptions." Hodge added that the vast majority of clients have committed to remaining with Pimco, the WSJ reported.

Those comments echo a report that was sent to MFWire by a retail RIA that was on a call with "Pimco senior management."

"In the short term, if there are large withdrawals, PIMCO has advised us that due to their current secular and cyclical outlooks, they had raised their liquidity position so the impact on the share price should not be impacted significantly should they have to liquidate to raise cash in an unfriendly environment," the RIA wrote.

Elsewhere on the advisor front, InvestmentNews is reporting that Morgan Stanley and LPL are considering placing Pimco on "watch". Morningstar is placing its ratings of Pimco funds "under review". [Morningstar subsequently lowered Pimco Total Return's rating to Bronze.

About 350 Morgan Stanley reps heard an in person defense of Pimco from Joseph Deane, an EVP who made a scheduled appearance at a rep conference in Miami. Deane responded to an audience question about Gross' move by telling the gathered reps that Pimco has the smartest people in the world working for it.

The second question -- will anyone follow the Bond King out the door -- is also an interesting one. So far, there are no reports of additional defections, but that did not stop a former Pimco executive from telling InvestmentNews that he thinks there will be.

"He's going to pick off the best people. He knows who they are, and he's going to take them. But we're not dancing. It's a shame. A lot of my really good friends are going to have six to 12 months in a full-force defense of Pimco," David Young told InvestmentNews. Young is a former Pimco executive who is now CEO of Anfield Capital Management.

One interesting case is David McCulley who came out of retirement early this summer to act as Pimco's chief economist (and perhaps provide Gross some familiar company).

Morningstar analyst Vincent Liu likens a possible outcome to the example of Jeffrey Gundlach's departure, noting that DoubleLine has pulled in $50 billion of assets.

One possible difference in the two cases: Jeffrey's team followed him, yet so far as we know Bill's is staying home. 

Edited by: Sean Hanna, Editor in Chief


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