Pimco’s Total Return Fund, the world’s largest mutual fund, has lost $41 billion since Federal Reserve Chairman Ben Bernanke first announced his intention to end QE in May, 14 percent of the fund’s total value, writes Nick Summers for Bloomberg Businessweek. The Federal Open Market Committee (FOMC) is set to meet on September 17 and 18, and many analysts expect tapering to begin by the end of this month.

Bill Gross Mutual fund

Total Return Fund performance

The Total Return Fund was created by ‘Bond King’ Bill Gross in 1987 and grew to $292 billion before it started contracting earlier this year. It performed in the top quarter of mutual funds every year for the last ten, and earned Gross a reputation for being a highly talented fund manager. But bond indexes have fallen this year as 10-year US treasuries yields grew from 1.76 percent to 2.97 percent, and as one of the biggest bond holders, the Total Return Fund has been one of the hardest hit.

While it would be easy to simply blame the loss on tapering, that doesn’t fully explain why one of the most consistent funds in recent memory is suddenly in the bottom 15 percent. Gross and others can’t have thought that QE would last forever.

Gross steps back from his fund

Tapering aside, Pimco is in a state of flux, as Gross has been preparing for the time when he has to step back from the operation he started. “The $2 trillion firm is grooming younger managers and venturing into equities as investors move beyond traditional U.S. bond funds to capture higher returns,” wrote Charles Stein and Alexis Leonidas for Bloomberg back in May.

Gross is the most famous manager at Pimco and has been one of the firm’s biggest draws for some time, but at 69 years old the company has to prepare for when he will no longer be around. If this misstep is a result of Gross taking less of a hands-on approach to the fund, that could be a sign of serious problems in Pimco’s future. If instead it turns out that Gross was blindsided by tapering, not doubt he’ll push retirement back even further so that he can show everyone he hasn’t lost his touch.