Pimco Manuever May Have Limited The Fallout After Gross’s Exit

Ivascyn Bought

The Pimco Income Fund, run by Daniel Ivascyn, acquired 2021 TIPS and 2025 TIPS with face values of $527 million and $984 million respectively during the same quarter. The 2025 TIPS ranked as Pimco Income Fund’s largest holding at the end of March, according to data compiled by Bloomberg.

Ivascyn’s fund, which seeks to maximize current income, previously held little or no TIPS since the middle of 2012, according to regulatory filings.

Pimco Total Return, by contrast, owned a big chunk of that market before Gross’s exit. The fund held about 13.9 percent of outstanding TIPS of an issue maturing in 2021 and 19.2 percent another maturing in 2025, excluding securities owned by the U.S. Federal Reserve, according to data compiled by Bloomberg.

“If you want to unload a position in TIPS, it’s going to be extraordinarily problematic and visible to everyone out there” said David Ader, the head of government bond strategy at CRT Capital Group.

Taper Tantrum

Pimco funds have engaged in cross trades for years. For most of its history, though, Total Return bought far more securities than it sold. During the five-year period ending March 2013, Pimco Total Return Fund bought $37.6 billion of securities from its fellow funds while selling them about $14.2 billion, according to SEC filings.

That changed about two years ago, when the fund first began seeing outflows. Pimco Total Return sold some $12 billion of securities to affiliates in mid-2013, when fears that the U.S. Federal Reserve might slow its bond buying program led to a fixed income selloff known as the taper tantrum. The fund also bought almost $5 billion in securities from other Pimco funds during that time.

The cross-selling accelerated after Gross left in September, with $18 billion in sales, compared with purchases of only $4 billion, according to the fund’s most recent annual report.

“If you are trying to move five bonds, that is one thing,” Lipper said. “If you are trying to move a thousand, that is where the real liquidity issue comes in.”