Pimco Dominance In Question As Advisors Flee Funds

Manager Turnover

“Any time there is manager turnover in any fund people use that as an opportunity to revisit and re-evaluate their fixed income holdings,” Hancock said.

Morningstar Inc., the Chicago-based researcher, cut the mutual fund’s rating to bronze from gold after Gross’s departure. The downgrade was prompted by uncertainty regarding potential capital outflows and the reshuffling of management responsibilities at the company, Morningstar said.

Investors have moved money away from traditional fixed- income managers this year in anticipation of rising interest rates. Pimco Total Return Fund has suffered withdrawals of more than $65 billion since the beginning of 2013, according to Morningstar.

Pimco named Daniel Ivascyn as group chief investment officer following Gross’s departure, and appointed Mark Kiesel, Scott Mather and Mihir Worah to take over management Pimco Total Return Fund.

401(k) Mainstay

The Pimco Total Return Fund is the largest fund held in 401(k) plans by assets, according to San Diego-based BrightScope Inc., which rates retirement plans, and at some employers it’s the only bond-fund option for workers.

Wilmington Trust, a unit of M&T Bank Corp. that advises wealthy families, has recommended that clients redeem shares of Pimco funds where Gross was the manager and has put other Pimco funds on watch, said Rex Macey, the firm’s chief allocation officer. Wilmington Trust, whose affiliates manage about $78 billion, has recommended as a replacement its own Wilmington Trust Broad Market Bond Fund and TCW’s Metropolitan West Total Return Bond Fund, he said.

“Our concern relates to their managers being distracted by events at the firm and by the need to manage heavy redemptions,” Macey said.

Some advisors started encouraging investors earlier this year to diversify away from Pimco, after the first signals of management upheaval emerged. In January, its former chief executive officer, Mohamed El-Erian, resigned after clashing with Gross over management of the firm.

Chris Karam, chief investment officer at Sheridan Road Financial, a Northbrook, Illinois-based firm advising on more than $11 billion of assets, said he has been turning to strategies run by JPMorgan, Prudential Financial Inc. and Western Asset.

“We began to incorporate different managers a couple years ago and accelerated that process this year after the news in January,” Karam said.