Pacific Investment Management Co. won $60 billion in net deposits last year despite redemptions from Bill Gross’ Total Return fund as investors put money into stock funds and products designed to weather falling markets.
PIMCO’s assets rose by $110 billion in 2011 to about $1.35 trillion, the fourth-largest increase in its 40-year history, Mohamed El-Erian, CEO and co-chief investment officer with Mr. Gross, said Thursday in an interview.
Clients put money into PIMCO’s new equity funds, so-called tail-hedging funds that protect investors from swings in the market, and asset-allocation products that can invest in an array of securities, Mr. El-Erian said.
The $244 billion PIMCO Total Return fund, which more than quadrupled in size over the past decade to become the world’s largest mutual fund, had its first yearly withdrawals in 2011 after Mr. Gross trailed benchmarks because of his avoidance of U.S. Treasuries.
The Total Return Fund returned 4.2% last year, trailing 69% of rivals, according to data compiled by Bloomberg. The fund had $5 billion in withdrawals last year, according to Morningstar.
“We recognized that the large rate of growth of our core U.S. fixed-income business was unlikely to be sustained,” Mr. El-Erian said in the interview. “We had a strong obligation to our clients to evolve our product and solution capabilities commensurate with what we identified as major transformations in the global economy and markets.”
The expansion into other asset classes coincided with PIMCO’s “new normal” forecast for slower growth in the developed economies, higher unemployment and subdued market returns in the period following the 2008 financial crisis. Mr. Gross wrote in his investment outlook on Wednesday that PIMCO’s new normal forecast was “morphing” into a view of extreme outcomes characterized by credit risk and zero-bound interest rate risks.
Mr. Gross reversed his earlier aversion to U.S. Treasuries and the dollar, saying investors should hedge their bets given the extreme risks in the market and the possibility of a “credit implosion” in Europe. Mr. Gross, who eliminated his Treasury holdings from the Total Return fund last February, has since increased his holdings in U.S. government debt to 23% of the fund as of Nov. 30.