Pimco Total Return Fund Posts Record $23.5B Net Outflow in September

Pacific Investment Management Co suffered a record $23.5 billion of withdrawals from its flagship Pimco Total Return Fund in September, with its largest daily outflow occurring on the day of Bill Gross's surprise resignation from the firm.

The Newport Beach, Calif.-based fund manager said the Pimco Total Return Fund, run by Gross for 27 years who made it into the world's largest bond fund, is "well positioned" to meet potential redemptions.

The Pimco Total Return Fund has now experienced 17 straight months of outflows, totaling $92.3 billion. Assets under management have fallen below $200 billion, down from a peak of $292.9 billion in April 2013.

"I'd say that this spike in outflows might not be over. Earlier we thought that $8 billion or $9 billion in a month was pretty bad, and here we're getting $8 (billion) and $9 billion a day," said Jeff Tjornehoj, head of Americas research at Lipper, a Thomson Reuters company.

"I think there's probably a couple of phases to it. First, it's the shock, people who had been thinking of withdrawing assets to Total Return reacted immediately. And then the next phase is those who are wondering if they got left behind."

Gross, the bond market's most renowned investor and sometimes called the "Bond King," quit Pimco for distant rival Janus Capital Group Inc on Friday, a day before he was expected to be fired from the firm he helped found more than 40 years ago.

Added Jeffrey Gundlach, the founder of DoubleLine Capital, an investment firm that has been a major rival of Pimco: "I don't know this for sure, but if you have any common sense, that money of record withdrawal came out the last three days."

Gundlach's DoubleLine reported an eighth consecutive month of inflows in September, with net inflows of $1.65 billion, more than double the amount of the previous month.

Pimco wasted no time in highlighting the inflows into a fund run by Gross's successor, Dan Ivascyn, whose Pimco Income Fund has seen more than $6.5 billion of net inflows year-to-date. The firm also said diversified and alternative fixed income strategies - which Ivascyn oversees - now account for more than two-thirds of PIMCO's assets under management.

"Over the last five years, we have expanded into far more parts of the fixed income market and into other asset classes and other geographies, so the Pimco Total Return Fund does not define Pimco," Pimco CEO Doug Hodge told Reuters on Sunday. "It's an important flagship product of this firm, but it is not our only strategy."

The firm also downplayed the Pimco Total Return Fund's role in the bond market. "The core fixed income market in which the Total Return Fund invests is one of the largest and most liquid markets in the world, trading on average $700 billion of securities a day," Pimco said in a statement.

Influential pension consultant Mercer Investment Management downgraded its ratings on five Pimco funds this week, possibly triggering another wave of institutional investor outflows from the bond fund manager.

It followed Morningstar's decision to downgrade its analyst rating on the flagship fund to "bronze" from "gold" late Monday, citing uncertainty about outflows and the reshuffling of management responsibilities after the exit of Gross.

Pimco added: "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."

All told, the Pimco Total Return Fund remains the world's largest bond fund for now, Morningstar said.

(Reporting by Jennifer Ablan and Luciana Lopez; editing by Ken Wills and Grant McCool)