Paul McCulley’s announcement last week that he would be stepping down as chief economist at Pacific Investment Management Co. was just the latest note in the giant bond fund company’s annus horribilis.
Early last year, Chief Executive Mohamed El-Erian, Pimco’s heir apparent, left over disagreements with Bill Gross, Pimco’s founder and portfolio manager of the firm’s flagship Total Return Fund . At the time, Total Return was the largest bond mutual fund in the world and Gross the most famous bond investor on the planet.
Then in September, after the fund shrank by $65 billion over the previous 16 months, Gross also abruptly quit, shocking the mutual fund world and sending Pimco into turmoil. He’s now at Janus.
McCulley, a close friend of Gross, had left Pimco in 2010, but returned in May to help Gross calm investors’ nerves amid the outflow.
“McCulley had been brought in by Gross when things were unraveling in the management ranks,” said Jeff Tjornehoj, head of Lipper Americas Research. “Bringing Paul in was like bringing the band back together. He came back so Bill could show ‘It’s not as bad as the newspapers say.'”
With Gross’s departure, there wasn’t much reason for McCulley to stay, and management made that clear with the recent hiring of Joachim Fels, Morgan Stanley’s chief economist, as the new global economic adviser.
New Pimco Team
In the wake of Gross’s departure, Daniel Ivascyn, who has been at Pimco since 1998 and is head of the mortgage credit portfolio team, was named group chief investment officer. In 2013, Morningstar named him Fixed-Income Fund Manager of the year.
Pimco also named deputy chief investment officers Mark Kiesel, Scott Mather and Mihir Worah as portfolio managers of Total Return Fund.
Kiesel, named Morningstar’s Fixed-Income Fund Manager of 2012, is the global head of corporate bond portfolio management with oversight for the firm’s credit research. Mather was previously head of global portfolio management, and before that led portfolio management in Europe.
Before running the real return and multi-asset portfolio management teams, Worah was a postdoctoral research associate at the University of California, Berkeley, and the Stanford Linear Accelerator Center.
In the four months since Gross left, Pimco said, the fund delivered a net after-fee return of 3.99%, outperforming its benchmark by 1.11 percentage points.
Will Inflow Follow?
“The strong performance of the Total Return Fund since Scott Mather, Mark Kiesel and Mihir Worah took over management of the fund is a reflection of the talent of our seasoned portfolio management team,” said Douglas Hodge, Pimco’s CEO, in a statement January.
Still, it doesn’t look like the new team is instilling much confidence in investors. January was the 21st consecutive month of withdrawals, with net outflow of $12.5 billion, although this was significantly lower than the $32.3 billion pulled out the month after Gross left, according to Morningstar. Over the past 21 months, Total Return Fund lost $159.3 billion in net assets, down 54% from its 2013 peak of $293 billion, according to Morningstar. It is now the world’s second-largest bond fund.
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