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 Pimco and its owner, Allianz, Europe's biggest insurer, confirmed
the probe after a report in the Wall Street Journal said the SEC
investigation into the $3.6 billion exchange-traded fund has been
going on for at least a year but has picked up pace in recent weeks.
The SEC's probe is looking into how the ETF bought and then valued
its investments in bonds and whether that led to inaccurate
information about the fund's actual performance being given to
investors, the Journal said.
Gross, the chief investment officer of Pimco, and other executives
have been interviewed by the SEC as part of the probe, the report
said.
"Pimco has been cooperating with the SEC in this non-public matter
and we take our regulatory obligations and responsibilities to our
clients very seriously," a spokesman for Pimco told Reuters.
"We believe our pricing procedures are entirely appropriate and in
keeping with industry best-practices."
An Allianz spokeswoman said the insurer was aware of the probe but
declined to say when it started or give any details.
"Allianz has been kept regularly informed by Pimco about the SEC
investigation," she said.
The SEC could not be reached for comment outside regular U.S.
business hours.
Allianz's shares were down 0.5 percent by 0955 GMT (5.55 a.m. EDT)
on Wednesday, when the STOXX Europe 600 insurance sector index was
down 0.2 percent.
BAD MEMORIES
The news of the probe exacerbates what has already been a rough year
for Gross and Pimco. Pimco, which is based in Newport Beach,
California, had $1.97 trillion in assets as of June 30.
Pimco's flagship Total Return Fund, the world's largest bond fund,
has seen outflows for 16 straight months through August. Analysts
have said cash outflows began last year due to weak returns and the
fund declined 1.9 percent in 2013, its worst performance in nearly
two decades.
A public falling out earlier this year between Gross and his
one-time heir-apparent Mohamed El-Erian, who was co-chief investment
officer, has only added to investors' unease.
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Investors have pulled almost $70 billion from the fund since May
2013, Morningstar data shows, with net outflows in August alone of
$3.9 billion despite some improvement in performance.
The Total Return Fund had $221.6 billion in assets at the end of
August, down from a peak of $292.9 billion in April 2013.
The Pimco Total Return Exchange-Traded Fund, an actively managed ETF
designed to mimic the strategy of the flagship mutual fund, however,
has been doing better. The fund had net inflows of $87 million in
August, its third month of inflows, according to Morningstar.
Although total assets in the fund at the end of August were $3.6
billion, a fraction of the assets in the mutual fund, the ETF ranks
at the top of its category.
Allianz Chief Financial Officer Dieter Wemmer told Reuters TV in an
interview in May that Pimco had autonomy on investment decisions and
practices but that Allianz's controls were strict.
"When it comes to legal, compliance, risk, finance, internal audit,
they are part of the group-wide governance system and that is the
way it should be,” Wemmer said.
(Reporting by Ankush Sharma in Bangalore and Jonathan Gould in
Frankfurt; Editing by Gopakumar Warrier and Greg Mahlich)
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