PIMCO could withstand an asset drain of up to $350 billion in the next two to three years — about 10% to 15% of its total assets — before its portfolio management operations could be affected, analysts say.
That's on top of the tens of billions of dollars that PIMCO has already lost since William H. Gross, its co-founder and chief investment officer, left in late September.
But even analysts concede they don't know how much PIMCO is losing, because most outside monitoring firms only track mutual fund flows, not institutional. And institutional assets under management account for about two-thirds of the $1.47 trillion Pacific Investment Management Co. officials reported under management from non-affiliated companies as of Sept. 30. (That number does not take into account estimates that PIMCO had $48 billion in mutual fund outflows in October, mostly from the Total Return Fund Mr. Gross had managed.)
Morningstar Inc. analysts said in a Nov. 10 report that a sustained period of outflows, totaling $300 billion to $350 billion in the next several years, would affect the firm's bonus pool, which could lead to key personnel departures, or force PIMCO to reduce staff.
“Such a move would likely disrupt the firm's investment process, which could affect investment performance, and so on,” the report said.
The report said PIMCO generated profits of $6.5 billion in 2013 for parent Allianz SE, Munich, an operating margin of nearly 37%. PIMCO ranked fourth in operating profits for publicly traded asset managers that year; T. Rowe Price Group Inc. was first, with 47.58%.
“It's a good thing they are so profitable,” Philipp Haessler, equity analyst with Equinet AG, Frankfurt, said in an interview. He noted the firm has a cushion to absorb significantly more asset losses before it would have to take drastic measures.
Mr. Haessler also comes up with $300 billion to $350 billion in outflows before PIMCO would have to take steps such as reducing staff.
PIMCO executives insist the firm has a bright future. One consultant said he attended a meeting in which company officials portrayed staff at the Newport Beach, Calif., firm as, “as one big happy family.”
PIMCO officials say they are planning a major expansion of the firm's ETF platform, adding new products to replicate its mutual funds and targeting other areas of the firm, such as liquid absolute return strategies.
The expansion efforts include adding new ETFs to the $12 billion, 17-fund lineup, including a wider variety of fixed-income offerings and equity strategies, said Wendy Cupps, global head of PIMCO's product management group. This would be the first time PIMCO offered equity ETFs.
Previous efforts by PIMCO to build up areas such as active equities have been slow-moving, and non-fixed-income assets still account for less than 20% of the firm's assets.
But the future success of Pacific Investment Management Co. will depend on stemming the outflows that have drastically accelerated since Mr. Gross left.
The Morningstar report, the work of 12 analysts, says PIMCO probably won't face the worst-case scenario because it still benefits from a “large pool of highly talented and highly capable managers and analysts.” The report states, however, that if investment strategies exhibit poor performance or there is an unexpected downturn in the bond market, more investors could pull their money.
Mr. Haessler said good performance will be PIMCO's best chance to keep assets. He also believes PIMCO has put its top investment personnel in place to replace Mr. Gross and sees as a good sign that several key investment personnel who left in the months before Mr. Gross' departure have now returned to the firm.
Retaining the bulk of the assets in the Total Return Fund and separate accounts associated with it are crucial. The fund and associated institutional portfolios still have an estimated $300 billion in assets.
