The PIMCO Total Return fund saw withdrawals of $23.5 billion in September, with its largest daily outflow occurring on the day of star manager Bill Gross’s shock departure from the firm.

The PIMCO Total Return fund saw withdrawals of $23.5 billion in September, with its largest daily outflow occurring on the day of star manager Bill Gross’s departure from the firm.

PIMCO noted in a statement that the outflows on the following two days were “considerably smaller” and moved to reassure investors that the situation of its flagship $222 million fund was under control, despite the exit of Gross last week.

“Moreover, the fund is well positioned to meet potential redemptions. Short-term cash management is an area of expertise and strength at PIMCO,” PIMCO said.

Gross has joined rival Janus Capital Group in Newport Beach, California, and will manage the recently-launched Janus Global Unconstrained Bond fund. His exit is an example of how an individual, given sufficient prominence, can affect the fortunes of the erstwhile business, at least in the short-term. The global asset management sector has, for example, seen the recent shift of Neil Woodford from Invesco Perpetual; further back, Anthony Bolton caused waves when he left the Fidelity Special Situations Fund (he later moved to China to run another fund before stepping down this year).

Successor

PIMCO was quick to react to Gross’s departure by naming Daniel Ivascyn as his successor, as well as unveiling three new managers at the Total Return fund.

In order to ease investor fears, PIMCO highlighted the success of Ivascyn’s PIMCO Income fund.

“Investors have shown confidence in PIMCO as evidenced by significant inflows into strategies such as the PIMCO Income Fund, which has seen over $6.5bn of net inflows year to date in 2014,” said PIMCO.

“Diversified and alternative fixed income strategies now account for more than two-thirds of PIMCO’s assets under management. As we engage our clients around the world, we are confident that the vast majority of them will continue to stand with PIMCO as we demonstrate why we have earned the reputation as one of the world’s premier investment managers,” PIMCO added.

The news came after The Wall Street Journal reported the Securities and Exchange Commission was investigating Gross over allegations that managers inflated returns on the Total Return fund.

The Total Return fund, which was managed by Gross for 27 years, has experienced 17 straight months of outflows.

Since Gross announced his departure last week, several credit agencies have downgraded the fund, including Morningstar and pension consultant Mercer.  

Despite PIMCO’s reassurance, competitors such as Vanguard and DoubleLine Funds stand to gain from the firm’s problems. Already, they have attracted millions of dollars from PIMCO’s departing investors, with DoubleLine recording an influx of $1.65 billion into its mutual funds in September, its biggest monthly total of the year.

DoubleLine said on Wednesday its flagship DoubleLine Total Return Bond Fund ended September with net inflows of $1.32 billion, up from $562 million in August.

Reaction

Nick Dixon, investment director at Dutch financial services provider Aegon, said that investors concerned by the news of Gross’s departure should “think carefully before jumping ship”.

“Aegon’s analysis of 11 funds run by departing star managers found that investors should feel comfortable sticking where they are, with most funds continuing to out-perform benchmarks after the star manager leaves. Bill Gross has left a distinct investment DNA at Pimco, with talented analysts and a strong team culture. These qualities will endure for many years after Gross’ departure and should be reflected in Pimco’s future performance,” said Dixon.

“It is also important to think hard about the costs associated with moving money:  potential fees, out of market risk and missing likely gains from existing funds. Investors must weigh up the benefits with the costs and remember that often the wisest move may be to stay put,” he added.

Meanwhile Rob Harley, senior research analyst at Tilney Bestinvest, believes there is no need for investors to panic.

“On balance we believe those looking for a larger market reaction to this event alone, might be disappointed. However, this is not to say that investors should remain complacent to the risk of price volatility in this market. Liquidity risk is now a greater and more permanent feature of the corporate credit markets - something investors will have to learn to live with going forward," he said.

“Indeed it could be argued that any significant technical deterioration, if there were one, would be unlikely to affect credit markets in isolation - all asset classes would be likely to feel similar price pressures,” he added.

PIMCO has seen a number of high-level moves in recent months, including the departure of former chief executive Mohamed El-Erian, who is said, according to reports, to have left following disagreements with Gross. In addition to naming Hodge as replacement CEO, PIMCO also appointed six new deputy investment chiefs as part of a management restructure.

PIMCO was founded in 1971 and bought by German insurance and financial services giant Allianz in 2000. In May, Frankfurt-listed Allianz reported a fall in operating profit at its asset management arm of 26 per cent, driven largely by net outflows of €21.7 billion ($29.7 billion) from PIMCO.