Pimco can stand up to $350B in outflows: Report

Douglas Hodge of PIMCO
Peter Foley | Getty Images
Douglas Hodge of PIMCO

Pacific Investment Management Co can withstand additional outflows of about $300 billion to $350 billion over the next two years before its portfolio management operation is impaired, according to research firm Morningstar Inc on Tuesday.

Pimco is struggling to stem redemptions after the unexpected departure of co-founder Bill Gross on Sept. 26, an event that has triggered another round of speculation in the bond market over leadership stability and a possible separation from its parent Allianz SE.

Morningstar based its outflow estimate on the assumption that redemptions are orderly, Allianz continues its support and Pimco has strong firm-wide fund performance, Sumit Desai, an analyst at Chicago-based Morningstar, said in a webinar Tuesday to discuss the firm.

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Last week, Pimco reported outflows of $48.3 billion across its open-ended funds in October, adding to $25.5 billion of withdrawals in the previous month, Morningstar said.

In the event investors gradually withdrew $350 billion from Pimco over two years, it would represent about 19 percent of total assets, based on data showing the Newport Beach, California asset manager held $1.87 trillion in funds as of Sept. 30.

A majority of Pimco's firm-wide outflows in October stemmed from investors pulling money from its flagship Pimco Total Return Fund, which was managed by Gross. Doug Hodge, chief executive officer of Pimco, said at a conference on Monday that outflows have tapered somewhat since a huge spike on the day of Gross' exit.

Morningstar said Pimco "is likely more stable than it was prior to Bill Gross departure yet it will take time to see how the post-Gross Pimco jells, with many key players taking on new responsibilities."

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Morningstar said the "wild cards" for Pimco include bond market volatility and a rebalancing out of fixed income.

Ryan Mendy, chief operating officer of the Edge Consulting Group, a research firm that focuses solely on spinoffs and special situations,

said the outflows and organizational changes are weighing on Pimco's brand.

"We still maintain a view that Pimco should be spun off into a separate entity," Mendy said. "Without a Bill or Mohamed (El-Erian) at the helm, Pimco is deprived of both brand and human face. A colossal vertical mountain for a PR damaged company to climb. Pimco's board needs to demonstrate that they can protect both investors and their money by taking action."

He said a spinoff "would lead to a distinct, focused entity creating more value for the investors and shareholders."

Pimco declined to comment on Morningstar's and the Edge's reports.