PIMCO, AllianceBernstein Face Over Half A Billion In Calpers Redemptions; Weakness For High Yield Market Approaching

Not a good day for PIMCO as Calpers continues scapegoating for its deplorable performance, and today the California Pension manager decided to trim its exposure to PIMCO. In doing so, Calpers slammed the Newport Beach firm for being too risk averse (watch out Bill, you know what happened to John Mack for being too timid): "While PIMCO managed to return 35.06% [from January to September 2009], PIMCO's aversion to risk resulted in underperforming the benchmark return of 47.45% by 1,238 bp." The result: Calpers is pulling $100 million from PIMCO, however it is not firing the manager altogether and instead will consider "allocating more assets to PIMCO in the future when risk aversion is expected to produce alpha in the high yield market."

Ironically, Calpers, being the rocket scientists they are, contradicts itself in the very same memo, when it discusses the reason why it is cutting its allocation in another fixed income manager AllianceBernstein from $948 million to half a billion: "Because the significant rally in corporate credit is most likely done, reducing exposure to [AllianceBernstein] to $500 million on an incremental basis is justified (an underweight in the portfolio as a whole)."

So on one hand Calpers is punishing PIMCO for being too risk averse at the same time as it is withdrawing money from AB for having too much risk exposure. Brilliant. Nonetheless, the two take home messages are: at least according to Calpers, the corporate credit rally is done. That is disappointing: we were hoping CCC- rated bonds could trade from par to at least 200 with the maniacs running fixed income trading floors these days. And second: stay out of the HY way. With almost $600 million in dispositions coming to a BWIC near you, courtesy of the Calpers redemption, the next month should prove rather challenging for bonds.