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 During the year ended Aug. 31, investors made $64.7 billion in net
withdrawals from Pimco funds, according to research firm Morningstar
Inc. Those outflows will likely accelerate with Gross's departure.
"Lots of Pimco AUM (assets under management) will be up for grabs,"
analysts at Wells Fargo Securities said, noting that they reckoned
the total sum Gross managed at Pimco ranged from $500 billion to
$700 billion. If half of that amount turns over - typical when a
high profile manager leaves a fund - Gross' departure could
translate into a $300 billion market opportunity for rivals, Wells
Fargo analyst Christopher Harris said Monday in a research note.
BlackRock, the world's largest money manager, and Vanguard, the No.
1 U.S. mutual fund company, provide the performance and the size to
attract cash flows from investors unnerved by the infighting at
Pimco during the past several months and amid a probe by the U.S.
Securities and Exchange Commission. Smaller fund companies may also
benefit from the fallout.
Retail investors tend to shift money quicker than big pensions and
other investment institutions, which deliberate more slowly about
what to do.
Janus, the Denver asset manager with a volatile history, could be in
for a surprise if it is expecting Pimco money to flow automatically
after the star fund manager.
"Gross is a very capable investment manager. He's not God," said
Carl Nelson, executive secretary and chief investment officer of the
$1.1 billion San Luis Obispo County Pension Trust.
Instead, institutional investors such as Nelson, who can take months
to make decisions, will want to see how Gross settles into his new
role managing the Janus Global Unconstrained Bond Fund, which has
about $13 million under management.
To be sure, more than a dozen fund representative and consultants
told Reuters that they have hesitations about leaving Pimco, which
Gross co-founded more than 40 years ago.
"We hired Pimco as an organization, we didn't hire Bill Gross as an
individual to manage our money," said Stephen Rauh, the chairman of
the $4 billion Vermont Pension Investment Committee, which has Pimco
on its "watch list."
Pimco's Total Return Fund, which Gross ran personally for 27 years
and has about $222 billion in assets, appears most vulnerable to
poaching, said analysts at Susquehanna Financial Group.
"BLK (BlackRock) is likely the biggest beneficiary," analyst Doug
Sipkin said.
BRINGING IN A STAR
Meanwhile, few fund firms have had a harder time than Janus over the
past decade as its stock funds fell out of favor. Janus has
struggled for years to recapture the status it lost during the
dot-com crash. Its assets peaked at more than $300 billion in 2000
and stood at $178 billion at the end of June.
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Janus CEO Dick Weil hopes Gross will attract money to a stable of
bond funds that have just $31.4 billion in assets under management
as of June 30. That's up from $9.2 billion four years ago.
Janus now could double or triple those bond assets again as money
follows Gross, said Dan Sondhelm, partner at SunStar Strategic, a
financial services consulting company in Alexandria, Virginia.
"No salesman could do that," Sondhelm said. Investor cash flows
could start to gather steam by the first quarter of next year, he
said.
For Gross, the shift to Janus means giving up one of the industry's
biggest paychecks, a reported $200 million a year, if for no other
reason than the fund he will manage is a fraction of Total Return
Fund's size. Gross has a net worth of $2.3 billion, according to
Forbes.
"He didn't come for big money upfront, he came to build a fund" and
other products, said a person familiar with the matter, speaking on
condition of anonymity because of the sensitivity of the situation.
Janus likely has put together a pay plan that would reward Gross for
drawing assets into products he oversees, a key measure of success
in the fund industry, said Todd Sirras, managing director at pay
consulting firm Semler Brossy, which has worked with Janus in the
past.
Gross, 70, wasn't available to comment. A Janus spokesman said
executives including Weil wouldn't comment.
"Janus's move to hire Mr. Gross strikes us as precipitous, coming
two days after last week's multiple news reports about the U.S.
Securities and Exchange Commission investigation of alleged improper
valuation and performance reporting in Pimco's $3.6 billion Total
Return exchange-traded fund," Moody's said.
"If the SEC determines that these allegations are true, it would not
be clear what liabilities – both legal and reputational – might
attach to Mr. Gross."
(Reporting by Ross Kerber and Luciana Lopez; editing by Tim
McLaughlin, Linda Stern and John Pickering)
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