The reason why the first article we wrote on Friday after news hit that PIMCO co-founder was shockingly leaving the firm on Friday, was listing the massive bond fund's biggest holdings [8], was because it was only a matter of time: it, being of course, the massive redemptions that would follow Gross' departure by people that his 30+ tenure at the bond fund made very rich, and who couldn't care less about a brief central planning-inspired flame out. After all Gross isn't the first person who has lost the plotline due to the Fed's manipulation of every market.
So just how bad is it? Not for Gross of course: he has made his billions and is simply doing what he and Icahn do in their age: what they love. No, for Pimco, where the redemptions requests are already flooding in. According to the WSJ [9], just two days after the Gross announcement (both of which non-workdays), already some $10 billion has been withdrawn. And that is just the beginning:
Pacific Investment Management Co. suffered roughly $10 billion of withdrawals following the Friday departure of co-founder Bill Gross, a person familiar with the matter said, a sign of how quickly Mr. Gross's surprise move is reshaping the bond-investing landscape.
Pimco is bracing for more outflows on the heels of the veteran investor's departure after months of internal strife over his leadership. At the same time, some managers say they remain committed to the firm.
Some within the Newport Beach, Calif., investment firm are projecting it will lose at least $100 billion or more in assets due to withdrawals, the person familiar with the matter said, and some analysts peg the estimate higher.
Pimco Chief Executive Douglas Hodge said in a statement his firm "manages nearly $2 trillion in assets, and we are confident that the vast majority of our clients will continue to stand with us."
Will they? Remember: it wasn't Allianz, or Pimco, or some bond manager that was unknown until the El-Erian shake up earlier this year, that gave the Newport Beach bond manager $2 trillion in AUM. It was Bill Gross. And it would be a fitting farewell for Gross, who departed his former employer in what some say was a bout of rage, that his departure would also lead to the effective closure or outright liquidation of a bond fund which is forced to dump more than half of its holdings... at firesale prices in a bidless market!
The flight of $100 billion, more assets than many mutual funds hold, could roil some parts of the bond market with limited trading activity, experts say, as Pimco sells assets to meet investor redemptions and other managers put new money to work.
Rivals are trying to position themselves to attract some of the Pimco outflows.
"There is a good chance that Pimco will lose its dominant position as a fixed-income manager as assets find their way into other investment managers, thereby leveling the playing field in fixed income,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading in New York at Deutsche Bank's private wealth-management unit.
So far the biggest winner is the man many have coined the next bond king: "Competitor DoubleLine Capital saw its biggest inflow of the year Friday, taking in "hundreds of millions of dollars," said Jeffrey Gundlach, chief executive."
In the meantime, PIMCO, now ex-Gross is celebrating:
Even as Pimco prepared for some investors to follow Mr. Gross, Mr. Hodge said executives at the firm felt an "overwhelming" sense of excitement at the giant asset manager, which has been besieged with negative publicity, spotty performance in its flagship fund that Mr. Gross managed and investor outflows in that and other funds in recent months.
Sadly, the celebrations may end quickly if Kepler Cheuvreux 's take on the situation is proven correct.
Earlier today the French bank said that investors may withdraw a gargantuan $150 billion of Total Return Fund’s $221 billion AUM, which is also more than 10% of Pimco’s $1.44 trillion 3rd party AUM. The report said that Pimco operating profit may drop almost 15% on withdrawals following CIO Bill Gross’s departure. Translated: no bonuses for anyone celebrating today. Of course, the shareholders were already hit when the stock of Allianz tumbled by 6% on Friday.
And if the liquidations accelerate, especially considering the woeful state of bond market liquidity these days when PIMCO suddenly becomes such a major player on the offer side the Fed may have to launch QE just to absorb what PIMCO has to sell so as to not crush the bond market, it is none other than Bill Gross who will have the final laugh, especially if he is able to pick off the bonds his former employer is liquidating in a blue light special.
