Gross reduced his holdings of government-related debt in the fund for a second consecutive month in August as Treasury yields fell to an 19-month low, according to the latest data available on the Newport Beach, California-based firm's website. The Total Return Fund's investment in the debt was cut to 36 percent of assets in August, from 54 percent the previous month.

Pension Funds

Pension fund portfolios will likely return well below the 8 percent average that some funds assume, according to Gross. With most these portfolios split with 60 percent in equities and 40 percent in bonds, an 8 percent return would require nearly a 12 percent return on equities, given bond yields are about 2.5 percent, which isn't probable, added Gross. Pension portfolio returns have actually averaged about 3 percent over the past 10 years, Gross wrote.

Less than half the 50 state retirement systems had assets to pay for 80 percent of promised benefits in their 2009 fiscal years, according to data compiled by Bloomberg. The U.S. recession and stock-market collapse drained about $835 billion of value from the 100 largest public funds, according to U.S. Census Bureau data.

"The most likely consequence of simulative government policies that strain to get us there will be a declining dollar and a lower standard of living," Gross wrote in the note. "Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead."

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