Unstructured Finance

‘Bond King’ Gross speaks to 700 at Pimco client event in Big Apple

By Jennifer Ablan

Bill Gross did something last week he rarely does — venture from his Newport Beach, Calif. home to meet with investors twice. 

First in Chicago at the Morningstar Investment Conference where he made waves for donning sunglasses and joking he’d become “a 70-year-old version of Justin Bieber,” and then, the next day at a less-publicized event for 700 clients in New York City. 

The meetings are a sign that Gross, dubbed the market’s “Bond King,” is trying to make amends with investors and the media after a brutal first half of the year. 

Last Friday, Gross gave a keynote address and took some questions at Pimco’s annual investment summit in the Big Apple, which was the largest Pimco-hosted client event in its history with over 700 institutional investors and clients, Doug Hodge, ceo of Pacific Investment Management Co. told Reuters.
At Friday’s event, Hodge spoke reverentially about Gross, describing him in visionary language one might reserve for a great inventor or artist.
“Time after time, Bill has broken with conventional wisdom as he has seen opportunities where others have not, and he has been prepared to put it on the line, over and over again, and it has been this process of taking measured risk that has led to extraordinary long-term benefits to you, our clients,” Hodge said.
Gross is facing no shortage of investor attention.
Pimco’s flagship Total Return Fund, the world’s largest bond fund run by Gross with $229 billion in assets under management, saw net outflows totaling $15.67 billion for the year-to-date ending May and subpar performance.
Gross, co-founder of Newport Beach, California-based Pimco, has also been under intense scrutiny since his public falling out with El-Erian and news reports about Gross’s demanding and sometimes abrasive management style.
But for its part, Gross’s performance at his Pimco Total Return Fund is showing some signs of stabilization.
In the 12 months ending last Friday, the Pimco Total Return Fund, which has $229 billion in assets under management, is now beating its benchmark Barclays U.S. Aggregate Bond Index by 32 basis points, Hodge pointed out.
“At the end of the day, Pimco and Bill Gross should be judged by the value that we deliver to our clients. That’s the test,” Hodge told Reuters in an interview. “Through the Total Return Fund and other strategies, Bill has created more value for more investors than anyone in the history of our industry.”
The half-day summit on Friday featured Gross but also showcased Pimco’s new deputy chief investment officers and Rich Clarida, Pimco’s global strategic advisor.
After the client event, Gross also did a town hall meeting with employees in Pimco’s offices, which was also attended by several hundreds of personnel, a Pimco spokesman said. Pimco declined to comment on what Gross discussed at Friday’s client and employee events.
While many say Gross appears more engaged with colleagues, some institutional investors are still waiting for a turnaround in his performance.
The Pimco Total Return Fund’s three-year Sharpe ratio – a measure closely followed by pension funds, foundations and endowments — is hovering around 1.02. That is trailing the Barclays Aggregate at 1.24 and the average intermediate-term bond fund category at 1.26 (The higher a fund’s Sharpe ratio, the better a fund’s returns have been relative to the risk it has taken on).
Hodge added: “Generating alpha is more than simply buying and selling bonds, it is about breaking with conventional wisdom and ultimately about putting yourself on the line.”

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you’re the typical investor, it’s probably time to be a little bit more cautious.”

Chanos, president and founder of Kynikos Associates, admittedly knows it has been a humbling year for his cohort, with some short only funds even closing up shop.

The nine lives of the eminent domain for mortgages debate

By Matthew Goldstein and Jennifer Ablan

Law professor Bob Hockett, widely credited with popularizing the idea of using eminent domain to restructure underwater mortgages, says he continues to be approached by yield-hungry angel investors looking for a way to help out struggling homeowners and make money at the same time.

He said an increasing number of wealthy investors on “both coasts” regularly reach out to him to get more information about how eminent domain would work and get a better read on “the prospects of municipalities adopting one or another variance of the plan.”

Hockett also is continuing to advise local officials in a variety of cities including some in New Jersey and New York (Irvington, N.J. and Yonkers, N.Y. for instance) on how they might use eminent domain to condemn, seize and restructure deeply underwater mortgages for homeowners determined to keep-up with their high monthly mortgage payments.

Carl Icahn in his own words

Icahn’s Big Year in investing and activism

By Jennifer Ablan and Matthew Goldstein

We held an hour-long discussion with Carl Icahn on Monday as part of our Reuters Global Investment Outlook Summit, going over everything from his spectacular year of performance to his thoughts on the excessive media coverage of activists like himself who push and prod corporate managers to return cash to investors. We also talked about the legacy he wants to leave.

There was much Icahn wouldn’t talk about on the advice of his lawyer, however. While he said he took a look at Microsoft, he won’t say why he decided not to join ValueAct’s Jeffrey Ubben’s activist campaign. He also stayed mum on any plans for his Las Vegas white elephant, the unfinished Fontainebleau Las Vegas resort, which he bought out of bankruptcy proceedings in 2010.

Never one to mince words, Icahn said he takes issue with Bill Ackman’s brand of activism which he believes borders on micromanaging by telling chief executive officers how to do their jobs. “I think Ackman is the opposite of what I believe in activism. You don’t go in and you don’t go tell the CEO how to run his company.”

Money manager titans who can’t wait until 2014

The year can’t end fast enough for some of the world’s biggest investors.

Bill Gross, who many like to consider the King of Bonds, lost one of his prized titles last week when his PIMCO Total Return Fund was stripped of its status as the world’s largest mutual fund because of lagging performance and a swamp of investor redemptions.

The PIMCO Total Return Fund — somewhat of a benchmark for many bond fund managers — had outflows of $4.4 billion in October, marking the fund’s sixth straight month of investor withdrawals, and lowered its assets to $248 billion, according to Morningstar.

Greenlight’s David Einhorn slams Fed, again

David Einhorn

David Einhorn is pointing at you Fed

Greenlight Capital’s David Einhorn, one of the most closely followed managers in the $2.2 trillion hedge fund industry, is out with his latest investment letter and provides another lambasting of the U.S. Federal Reserve for what he describes as short-sighted policy decisions with regards to its continued quantitative easing.

“We maintain that excessively easy monetary policy is actually thwarting the recovery,” Einhorn said of the Fed and its decision to continue buying $85 billion a month in Treasuries and mortgage-backed securities. “But even if there is some trivial short-term benefit to QE, policy makers should be focusing on the longer-term perils of QE that are likely far more important.”

Einhorn says the Fed’s bond buying prompts some questions about income inequality and the ability of central bankers to deal with the next recession. Specifically, he asks in his letter:

Home sweet home, Blackstone

Kay Chapman and her boyfriend were saving up money to buy a home in the Las Vegas metro area while renting a home in a nearby town. But after months of plotting a strategy to buy a home at a foreclosure auction, they’ve given up for now and will soon move into another rental home–this one owned by private equity giant Blackstone Group.

Chapman and her boyfriend had to alter their strategy because the owner of the home they are currently renting from decided to sell after seeing how quickly home prices have surged in Sin City in the wake of all the institutional buying firms like Blackstone. Chapman’s current landlord wants far more for the house than she and her boyfriend are willing to pay.

So soon they’ll be moving into a Blackstone owned home, one of some 26,000 single-family homes the private equity giant has bought in US markets hard hit by the housing bust.

Ray Dalio’s all seeing reputation takes a hit

There are storm clouds on the horizon at Ray Dalio’s $150 billion Bridgewater Associates.

Yeah, excuse the weather imagery but it’s hard to resist given the sudden sharp reversal of fortunes with Bridgewater’s $70 billon All Weather portfolio. As Jenn Ablan and Katya Wachtel first reported, the portfolio that Dalio has long marketed to pension funds as an innovative investment strategy for navigating storm markets, isn’t doing so well in this stormy market.

The fund, as of last Friday, was down 6% for the month and down 8% for the year.

Ray Dalio went into this year even more bullish than we thought

By Matthew Goldstein

Hedge fund titan Ray Dalio is really bullish on stocks and all things risky–at least he was in early January.

A few weeks ago, our competitors at Bloomberg and The Wall Street Journal did a good job reporting on Dalio’s macro market thesis for 2013 when they got a transcript of an investor call (Bloomberg) and a sneak peak at Bridgewater Associates’ year-end report to investors (WSJ). But after taking my own recent look at Bridgewater’s year-end investor note–book is probably a better description for the 300-page plus bound treatise–you realize that bullish just doesn’t describe Bridgewater’s stance going in 2013.

Here’s a sampler of some of Bridgewater’s comments to investors:

“Cash in the developed world is a terrible asset.” “We would be short cash of all the major developed currencies” And this: “Bonds will be a lousy investment but cash will be worse.”

Jim Chanos and the bears come out of hibernation

By Matthew Goldstein 

The year is young, but so far its been a rough one for bearish stock investors with the S&P 500 is up 7.25% The surge in equity prices has left  a lot of short sellers–traders who bet on a stock sliding in value–with glum looks on their faces. And it’s with that bullish backdrop that several dozen of Jim Chanos’ closest friends gather in Miami for the noted short seller’s annual meeting of the bears.

The gathering of 40 or so people from Wednesday through Friday is a chance for Chanos and other like minded investors to kick around their best short ideas. A year ago, there was a lot of talk about shorting companies in the natural gas space.

The annual event at a resort in West South Beach is one where the invited guests are sworn to secrecy. That’s why there’s almost never any press coverage of the event, and even less coverage of the short ideas presented by Chanos & Co.

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