Firms large and small benefit from PIMCO's problems

Both large and small fixed-income managers benefited from the turmoil at PIMCO in 2014 as institutional investors moved assets out of the bond giant and into core-plus strategies run by other firms, Pensions & Investments data and interviews show.

Among managers reporting increases in their core-plus fixed-income assets were Voya Financial Inc., up 40.3% to $10.4 billion and Baird Advisors, 127.6% to $7.02 billion.

The departure of PIMCO co-founder and Chief Investment Officer William H. Gross in late September forced investors to rethink their core-plus fixed-income choices, said Christine Hurtsellers, CIO of fixed income at Voya Financial Inc., Atlanta. “For years PIMCO was used as a default fixed-income option,” she said.

Milwaukee-based Baird Advisors, a subsidiary of Robert Baird & Co. Inc., was one of the smaller firms to benefit from PIMCO's turmoil.

The firm, with $29 billion in worldwide assets as of Dec. 31, reported $7.02 billion in internally managed core-plus fixed-income assets for U.S. institutional tax-exempt clients.

“A big portion of the assets have been PIMCO related,” said Warren Pierson, a Baird senior portfolio manager and managing director. “The turmoil put assets into play and provided an opportunity for us.”

Poor performance of Pacific Investment Management Co.'s Total Return Fund started in mid-2013 and triggered outflows, say officials of competing firms. But the departure of PIMCO CEO and co-CIO Mohamed El-Erian in early 2014 accelerated moves by asset owners away from PIMCO. That current turned into a flood after Mr. Gross joined Janus Group Inc. The flow of money to competitors continues today.

Los Angeles-based TCW Group Inc., which itself was the subject of turmoil when it replaced star bond manager Jeffrey Gundlach in December 2009, was one of the biggest winners in 2014. The firm reported $47.36 billion in U.S. institutional tax-exempt internally managed assets in core-plus strategies at the end of 2014, a 105% increase from the year earlier. TCW spokesman Doug Morris declined comment on the increase.

Sources said that while TCW officials are keeping a low profile on how much of the gain came at the expense of PIMCO, a large percentage of asset flows are due to asset owners reviewing PIMCO accounts.

PIMCO officials didn't return phone calls seeking comment. This year, the firm did not supply asset class breakouts for P&I's annual survey. But the most well known of its core-plus strategies, the PIMCO Total Return Fund, has had 24 straight months of redemptions and reached $110.4 billion in assets as of the end of April, down from a high of more than $290 billion two years earlier, PIMCO data show.

Other firms that saw increases in core-plus fixed income during the survey period include Prudential Financial Inc., which saw a 73.8% jump in assets to $9.03 billion; and New York Life Investments, a 39.8% gain to $10.22 billion.

“We could probably say a significant amount of the increase in our assets are due to the redemptions at PIMCO,” said Michael Lillard, chief investment officer at subsidiary Prudential Fixed Income, which had $543 billion in assets under management as of Dec. 31. “The redemptions certainly ... made people look around.”

One major fixed-income manager, Western Asset Management Co., saw a small decline in assets under management for its core-plus strategies during 2014. The firm's parent, Legg Mason Inc., reported a combined $31.15 billion in core-plus assets of as Dec. 31, down 4.5%.

WAMCO's CEO James Hirsch-mann said the firm received $3.3 billion in new inflows into core-plus in 2014, but also saw institutional investors move around $3 billion from existing core-plus accounts to other fixed-income strategies.

He did say the inflows to the core-plus strategies were largely from PIMCO investors. “People were looking for an alternative,” Mr. Hirschmann said.