Unstructured Finance

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.

For the year, the PIMCO Total Return Fund has had outflows of about $33.2 billion. The Vanguard Total Stock Market Index now holds the title of world’s largest mutual fund with $251.1 billion.

Fears of rising interest rates once the Federal Reserve scales back its extraordinary stimulus have resulted in continued net cash outflows by investors and led to Gross’s fund being down 1.36 percent for the year — beating the industry benchmark but lagging behind many of the fund’s competitors.

The sultans of swing

Although most investors have been pleased with the steadily rising U.S stock market over the past six months, funds that profit when markets are convulsing are licking their wounds.

With market stress at multi-year lows, volatility hedge funds returned just 1.16 percent in the first quarter, compared with 3.7 percent for the broader hedge fund group.

Some of the volatility specialists are doing better than others by capitalizing on major market moves in Japan, for example. And some are doing better simply because they are ‘short’ volatility funds – they tend to perform better when markets are calmer. But those funds are now few and far between.

Obama hearts El-Erian

By Sam Forgione and Matthew Goldstein

OK, so it’s not a big gig like being nominated to head the Treasury Dept. But President Obama’s decision to tap PIMCO’s Mohamed El-Erian to head the President’s Global Development Council is no insignificant matter.

As the co-chief investment officer of the giant bond shop founded by Bill Gross, El-Erian is seen as the eventual heir apparent to run the Newport Beach, Calif firm. And El-Erian increasingly has become one of PIMCO’s most visible faces—maybe even more than Gross himself these days–when it comes to talking about what ails the U.S. and global economies.

The assignment is another indication of PIMCO’s growing ties to the Washington establishment, something that has developed as the firm has grown to manage $1.92trillion in assets and played a starring role along with BlackRock in helping to manage some of the financial crisis rescue programs. (For more see the Special Report that Jenn Ablan led earlier this year on Gross and his empire, Twilight of the Bond King).

Gundlach doesn’t whine over his stolen wine

By Jennifer Ablan and Matthew Goldstein

Who said bonds are boring? In recent days, Jeffrey Gundlach, the new king of the fixed-income world, has been dominating headlines with his lengthy CNBC interview on everything from counterparty risk to the market’s love affair with Apple stock to talk in the blogosphere about Gundlach’s pricey Santa Monica, Calif. residence being burglarized of more than $10 million in assets.

Against this backdrop, Gundlach’s firm, DoubleLine, hit a huge milestone this week as well, hitting $45 billion in assets under management.

For those who watched Gundlach’s TV interview on Wednesday they would never have guessed that the 52-year-old lost several high-end paintings and a 2010 red Porsche Carrera 4S in the burglary at his home a week earlier. The stolen goods include paintings by such artists as California Impressionist Guy Rose and landscape artist Hanson Duvall Puthuff. Also stolen were five luxury watches, wine and cash.

UF Weekend reads – The PIMCO edition

Jenn Ablan likes to tell me that people are always writing about PIMCO and Bill Gross, the long reigning “king of bonds.” And when you think of it there’s a lot of truth to that assertion.

Gross’ mammoth $263 billion Total Return Fund gets endless coverage because–by its very size–it really is the bond market. It’s one reason why so much ink is spilled whenever the Total Return Fund has a month where investors pull more money out of the fund than put in.  And it’s why there’s so much analysis of what Gross & Co. are doing with Treasuries and mortgage-backed securities–and whether they are using lots of leverage and derivatives to boost exposures.

Then again, it’s hard to ignore Gross & Co. since the bond king and his co-partner and heir apparent, Mohamed El-Erian are on TV virtually everyday offering their views on just about anything doing with the economy.

UF Weekend Reads

The latest offerings by our Sam Forgione include a little Bridgewater, PIMCO and Jamie.

From National Journal:

Jim Tankersley airs Nick Hanauer’s championing of the middle class after Hanauer’s TED Talk was pulled.

From Barron’s:

Ray Dalio explains why macro efforts to support the U.S. economy are “beautiful” in Sandra Ward’s interview.

UF’s Weekend Reads

We’re introducing a new feature on UF: a link to some weekend reads. Here is the first edition complied by Sam Forgione.

 

From The Guardian:

Andrew Balls, head of European investment for PIMCO from its London office, shares similar views on Europe and regulation with his brother, Ed Balls, of the British Labour Party. Brotherly love even extended to one of PIMCO’s major investment decisions: when Bill Gross decided to sell UK government debt in 2010, and Andrew Balls allegedly disagreed with the move, apparently backing his brother’s political status.

From The New Deal 2.0:

An eye for an eye, a rebuttal for a rebuttal. Bruce Judson argues that Jamie Dimon’s vengeful jab at the media for making less money than JP Morgan is unfair. For one, banks are government-backed while media companies aren’t.

PIMCO and BlackRock go strolling down K Street

By Jennifer Ablan and Matthew Goldstein

Wall Street may hate financial regulatory reform, but lobbyists certainly love it—especially ones working on behalf of giant asset managers PIMCO and BlackRock, which control a total of nearly $5 trillion in assets.

Last year, PIMCO and BlackRock both upped their lobbying expenditures in a big way.

The not-for-profit group OpenSecrets.org reports that Bill Gross’s Pacific Investment Management Company spent $450,000 on lobbyists last year, up from $120,000 in 2010. BlackRock’s spending on lobbyists rose to $2.5 million in 2011, up from $1.45 million in the prior year.

Paul after PIMCO

 

By Jennifer Ablan and Matthew Goldstein

Paul McCulley says working at bond giant PIMCO was like being in Camelot. But in some ways, Bill Gross’s former top Federal Reserve watcher seems a lot happier and more at peace with himself since leaving the Newport Beach, Calif.-based firm at the end of 2010.

These days McCulley, who is credited with coining the phrase “shadow banking” to describe the role Wall Street banks and hedge funds play in pumping liquidity into the financial system, looks more like a professor at some liberal arts college than a once mighty money manager of some $50 billion.

His hair is long—down to his shoulders. He sports a beard and has lost 20 pounds. He regularly walks 8 miles a day and spends as much time fishing as he does thinking about ways to get the U.S. economy out of its current liquidity trap—a situation in which all the Fed’s priming of the pump does little until consumers can get relief from all the mortgage and credit card debt they accumulated in the past decade.

Gross miscalculation?

By Jennifer Ablan and Matthew Goldstein

It appears that Bill Gross’s PIMCO Total Return Fund is losing ground with investors — just not as fast as we originally thought.

Morningstar, the mutual-fund tracker, initially told us that PIMCO’s flagship fund had suffered $17 billion in net outflows over the last 12 months. It turns out Morningstar discovered this morning that it miscalculated and the figure actually is $10.3 billion.

That’s slightly better news for Gross but the trend still holds that the fund is seeing  a steady stream of outflows. Morningstar estimates that in October and November of this year, PIMCO Total Return fund has seen $1.69 billion in customer redemptions.

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