| NEW YORK, March 11
NEW YORK, March 11 Several U.S. institutional
investors said they are closely monitoring the developments at
Pimco, the world's largest bond firm, in the wake of Mohamed
El-Erian's abrupt resignation as CEO and ensuing acrimony
between him and co-founder Bill Gross.
The investors, including retirement systems, have formally
put Pimco on "watch lists," a signal that they will keep a much
closer eye its performance than usual. It could eventually lead
to reductions in the amount of money they allocate to funds at
the firm, whose full name is Pacific Investment Management Co
and which has $1.91 trillion in assets.
"We intend to go out and meet with them over the course of
the next month," said David Hunter, chief investment officer of
the North Dakota State Investment Board. The board, which has
about $400 million invested with Pimco, put the fund on its
watch list on Feb. 28.
Hunter said the board could ultimately decide not to make
any changes to its allocation.
The California Public Employees' Retirement System, the
largest U.S. pension fund, said it had not placed Pimco on a
formal watch list, but it was also paying close attention to
"CalPERS staff has tremendous respect for the staff at
Pimco," the system said in an emailed statement. "That being
said, we are monitoring the issue and will keep our board aware
of the changes."
In a statement, Pimco CEO Douglas Hodge said: "We are
focused on communication with our clients, and have been in
regular contact with them following the recent leadership
transition. They understand the changes we have taken and why,
and are ready to move forward with us."
In a Tweet on Monday, Gross wrote, "No distractions here -
just long term performance satisfaction - working hard as always
The closer scrutiny by state and local pension systems shows
that Gross, though, may have more work to do to assuage investor
concerns after El-Erian's surprise departure and reports of
growing discord between the two men amid weak fund performance.
Overall, customers withdrew $41.1 billion from Pimco's
flagship Total Return Fund last year, a record amount
for the manager, according to investment research firm
Morningstar. The fund posted another $1.6 billion in outflows in
February, reducing assets to $236 billion and marking the 10th
straight month of outflows. [ID: nL1N0LZ0N0]
The Total Return Fund, which Gross manages, trailed more
than 70 percent of its peers in February.
Last month, a Wall Street Journal article described the
worsening relationship between the two men as Pimco's
performance deteriorated. Later, Gross told Reuters that
El-Erian, who is due to leave the firm in less than a week, was
trying to "undermine" him by talking to the Journal.
A memo from investment consultant NEPC to the City of Fresno
Retirement System Joint Boards noted "an elevated level of
concern" around the changes at Pimco.
During a recent on-site visit to the bond firm's offices,
"it was clear that there was a profound sense of disappointment
and surprise within Pimco regarding Mr. El-Erian's departure,"
the memo said, adding: "Mr. Gross viewed Mr. El-Erian as his
successor and during the meeting he expressed a level of sadness
and frustration regarding the resignation."
The Fresno systems were already weighing investing with
Pimco when news of El-Erian's departure, as well as other staff
changes, came out. When the city wanted reassurance on
organizational questions, Pimco sent a team to the Fresno
The Fresno systems are now negotiating with Pimco and expect
to invest money with the firm in coming months.
"You're talking a lot of depth (of the bench). It's not
driven by two people," said Stanley McDivitt, the systems'
Other investors said they were not in a rush to make changes
to their allocations.
The Florida State Board of Administration spokesman Dennis
MacKee said it placed Pimco on its watch list as a routine
procedure, which it followed for any firm that was undergoing
The Florida board has about $1.7 billion in its pension fund
at Pimco and about $240 million from its defined contribution
plan with the firm.
"We think of our watch list as just enhanced oversight. You
look a little deeper," MacKee said.
Neil Rue, a managing director at Pension Consulting
Alliance, said it was too early to make any decisions about how
these changes might affect Pimco's performance.
"On the fixed income front, we told our clients don't take
any major action, but we need to watch this closely," Rue said.
If Pimco's style remains consistent, given Gross' strong
track record over many years, there may be no changes
recommended, Rue added.
R. T. Jones Capital Equities Management Inc Chief Investment
Officer Steve Davis said his fund pulled out $100 million from
Pimco Total Return Fund last year because of a desire to reduce
duration exposure and interest rate risk, but he would consider
returning to the bond giant in the future.
"Nor do we think the internal turmoil will negatively affect
the performance of the fund. In fact, we don't rule out using
the fund again in the future," Davis said. "We have very high
respect for Bill Gross and his team at Pimco."