Unstructured Finance

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.

And since November 2010, total outflows from the fund have been $12.3 billion. November 2010 was a critical month for Gross, also known as “the Bond King,” because it was the first time his fund had suffered outflows in about two years.

Morningstar also reports that over the past 13 months, the Total Return fund has seen outflows in 8 of those months. Last December, it was a particularly brutal month for Gross. Roughly $6.7 billion was withdrawn from the fund. And given this year’s poor performance, there is a strong chance this December’s outflow could be hefty too.

Welcome to Paulson-mart

By Matthew Goldstein

It’s been an ugly summer for hedge fund king John Paulson with two of his biggest funds down more than 25 percent. But what makes that poor performance all the more painful is how widespread it is being felt by wealthy individual investors around the globe.

Paulson’s flagship Advantage funds would appear to be exclusive terrain with a $10 million investment requirement. But that hefty entrance fee is something of a veneer because many of Paulson’s investors have gained entrance to his kingdom by plunking down as little as $100,000. That’s because Paulson’s Advantage funds are some of the most widely sold hedge fund portfolios on distribution platforms maintained by Wall Street firms, European banks and small investment advisory firms around the globe.

Paulson has built a powerful internal marketing force to make sure there is a steady stream of money from wealthy individual investors trying to get into his funds. This was one of the more surprising things my colleagues Jennifer Ablan, Svea Herbst-Bayliss and I found when we began taking a close look at Paulson’s problems this year.

Quality control

After last year’s record poor performance, investors may view a warning that the quality of hedge funds could get worse with a certain degree of irony.

rtxa3mqHowever, according to the Hedge Fund Standards Board’s chairman Antonio Borges, this is one of the negative effects on the industry that proposed EU laws could have.

What he calls the ‘protectionist element’ of the draft — whereby the EU market could be shut to fund managers from outside unless their host countries adopt similar rules — could mean large hedge funds in London gain a comfortable market position without having to face up to competition from the huge U.S. hedge fund industry.

Staying positive

rtr23yfeThere seems to be an endless wave of bad news hitting the hedge fund industry at the moment — gates and suspensions, record poor performance, the Bernard Madoff scandal and so forth – but there are still one or two reasons to be positive.

According to a survey of institutional investors by alternative assets data group Preqin, conducted in January (and therefore after the alleged Madoff fraud came to light), only 8 percent said they were no longer confident about hedge funds and would reduce investments.

By contrast, 26 percent said they would be increasing their allocations this year.

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