Morningstar Inc. has lowered two important overall ratings on Pimco.
 
The research firm lowered Pimco's overall stewardship grade to C from B, and its parent pillar score to neutral from positive.
 
The “changes reflect a higher degree of uncertainty around the firm's recent personnel changes and lower manager investment alongside fund shareholders,” wrote Eric Jacobson, a senior fund analyst, and Michael Herbst, director of active funds research, in a detailed post on Morningstar’s website Tuesday.
 
The analysts said the changes were based on “a series of extensive conversations with Pimco's leadership” following the January announcement that former CEO and co-CIO Mohamed El-Erian would be departing the firm.
 
Morningstar said its analysts would be reassessing ratings on individual Pimco funds in April.
 
The article said that while Pimco has always had a deep management bench to replace lost talent, “El-Erian's departure was clearly a game changer [because] he was [CIO Bill] Gross' hand-picked and named successor” and as a result of his departure, “no single remaining member of the [Pimco] Investment Committee had the kind of senior-statesman profile of those who had departed in recent years.”
 
Jacobson and Herbst added that “it remains an open question whether the current Investment Committee members--several of whom are a bit less seasoned than their predecessors--will consistently voice their opinions and fuel the debate that has been crucial to Pimco's past success.”
 
The analysts said that “Gross has acknowledged that he understands the risk an unhealthy culture can pose to the organization” and has taken steps to “encourage greater dialogue and debate within the Investment Committee” such as having his six new deputy CIOs take turns leading committee meetings.
 
The deputy CIOs are seen as potential successors to Gross, but “the firm isn't likely to name anyone as an intended successor … before the need actually arises,” Jacobson and Herbst wrote. “It seems in the realm of possibility that competition for the slot could prove contentious.”
 
A Pimco spokesman was not immediately available.