March 18 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 Chief Executive
Officer Mohamed 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.
One of the categories used for Morningstar's analyst ratings
that looks at the priorities of the firm called "Parent Pillar"
was also downgraded to neutral from positive. Analyst ratings
are qualitative and different from the firm's five-star rating
system, which is based on risk-adjusted returns.
Morningstar analysts said: "The changes to PIMCO's
Stewardship Grade and Parent Pillar score do not automatically
affect PIMCO funds' overall Morningstar Analyst Ratings for
Funds, yet it is logical to assume that Morningstar analysts
would move quickly from here to reassess those ratings on a
The downgrade was also because of lower levels of
investments by Pimco managers in their own respective funds.
Morningstar has found that portfolio managers who invest in
their funds show a conviction in their investment approach and
their funds perform better on average, particularly on a
Morningstar also said the firm is preparing a follow-up
piece for early April 2014 "that will summarize our current
opinions on individual PIMCO funds. In that piece we'll also
answer a number of PIMCO-related questions that we have been
receiving most frequently from investors."
On Feb. 24, the Wall Street Journal reported that former
Pimco CEO El-Erian's close relationship with Pimco co-founder
Bill 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.
On Monday, El-Erian told Reuters that he wanted to steer
clear of the drama surrounding his falling out with Gross for
In his first phone interview since leaving the world's
largest bond fund, El-Erian declined to discuss what he thought
about reports that a clash with Gross led to his resignation. He
also would not discuss Gross' comments questioning his
investment record, or Gross' allegation that he was trying to
Morningstar analysts remarked on those recent news stories
in their report on Tuesday: "A number of media articles have
focused on the fractious interactions between CIO Bill Gross and
El-Erian; short-term performance challenges and outflows at a
few of the firm's funds; and Gross' at-times tempestuous
behavior. Those articles generally did not directly address the
question of whether El-Erian's departure, Gross' behavior, or
the recent leadership changes have actually impaired or
benefited PIMCO's investment process and investment culture.
We've been delving into that question in a series of extensive
conversations with PIMCO's leadership."