UPDATE 1-Pimco replaced by TCW Group as subadvisor of $1.3 bln fund

Thu Mar 20, 2014 6:41pm EDT

(Adds time period of when decision was made; byline)

By Jennifer Ablan

NEW YORK, March 20 (Reuters) - Pacific Investment Management Co. has been replaced by TCW Group Inc. as the subadvisor of a $1.3 billion bond fund offered by Columbia Management Investment Advisers LLC.

In a statement on Thursday, TCW said the fund, previously known as the Pimco Mortgage-Backed Securities Fund, will become the TCW Core Plus Bond Fund. Initially launched in 2010, the fund had invested significantly in highly rated mortgage instruments and sought to provide shareholders with total return through both income and capital appreciation.

Within its mutual fund families, TCW manages several Morningstar five star-rated bond funds, including the MetWest Total Return Bond Fund and the TCW Total Return Bond Fund. Over the past three years, the MetWest Total Return Bond Fund outperformed 95 percent of its peers, and the TCW Total Return Bond Fund outperformed 98 percent of its peers.

According to a source familiar with the situation, the move out of Pimco had been in the works since October and was unrelated to the management shakeup at Pimco. Columbia Management was not available for comment.

Pimco co-founder Bill Gross has been dealing with the public fallout from his former heir apparent Mohamed El-Erian, who shared the co-chief investment officer title with Gross.

On Feb. 24, the Wall Street Journal reported that former Pimco CEO El-Erian's close relationship with Gross had soured as the firm's investment performance deteriorated last year. Then Gross told Reuters that his one-time lieutenant was trying to "undermine" him and that he had "evidence" El-Erian "wrote" the Journal article.

Morningstar Inc analysts have downgraded Pacific Investment Management Co's overall stewardship grade by one notch on Tuesday, reflecting a higher degree of uncertainty after the departure of its El-Erian and other key personnel.

The research firm downgraded Pimco's stewardship grade to a C from B following a comprehensive review of Pimco which included a visit to the Newport Beach, California-based fund company by Morningstar analyst Eric Jacobson on March 10. The highest grade is an A and the worst is an F.

Pacific Investment Management Co., which had $1.91 trillion of assets under management as of Dec. 31, is a unit of European financial services company Allianz SE.

David Lippman, chief executive officer of TCW, said, "We are pleased to continue to expand our partnership with Columbia Management and look forward to putting our industry-recognized expertise in fixed income to work for the benefit of investors in the TCW Core Plus Bond Fund." (Reporting By Jennifer Ablan; Editing by Cynthia Osterman)

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