When Pimco’s Bill Gross was speaking at the Morningstar Conference in Chicago several months ago, he wondered aloud why he was being so harshly penalized by asset withdrawals after delivering strong performance over the lifetime of his fund. The most recent asset withdrawals, the 16th straight month of such asset declines, are sure to leave the head of the world’s largest bond fund scratching his head.

Pimco Bill Gross
Bill Gross at the Morningstar conference in Chicago – June 19th 2014

PIMCO lost another $3.9 billion in client assets

In August Pimco lost another $3.9 billion in client assets after posting a 1.11 percent return on the month – besting over 3/4 of his bond fund manager peers. Despite the fund’s strong August performance it is up just 4.31 percent on the year, trailing just under ¾ of his peers on a yearly basis.  Such year to date performance marks the fund’s worst showing in nearly two years, a Reuters report by Jennifer Ablan notes.

Pimco’s flagship Total Return Fund is still a major player with $221.6 billion under management, but speculation as to when the asset losing streak will abate doesn’t come with clear answers. The fund, which stood at a peak of $292.9 billion in April 2013, has lost over $70 billion in investor assets, roughly 23 percent of total assets, in little more than one year.

While analysts have credited the outflows to weak returns, some institutional investors have privately wondered if behind the scenes the tranquil picture presented to the public really belied volatility under the surface.  This erupted into a public scene leading to the departure of Mohamed El-Erian.

The rosy picture between Gross and El-Erian

When El-Erian announced his surprise departure in January, many reports painted a rosy picture between Gross and El-Erian. ValueWalk, however, reported potential disagreement the day after his departure.  In that article we noted “The investment philosophies of Gross and  El-Erian were a study in contrast.”  As Gross lamented the future potential for bond appreciation, he began to dabble in aggressive alternative strategies.  The firm developed a quantitative division and launched a managed futures trend following mutual fund in 2013, among other initiatives.  Gross was known as the optimist with a new and aggressive push into alternatives with El-Erian was known as the “worrywart…”

El-Erian’s leaving was a surprise to many, as Gross had publicly named El-Erian his heir apparent to the investment throne that then had nearly $2 trillion under management.  However, as reported in ValueWalk, that kingdom was said to be in trouble, as assets under management had been sliding in the firm’s bond fund while many market forecasters have been calling for an end to the twenty year bull run in bonds, issues ValueWalk addressed the day El-Erian announced his resignation from the firm.

PIMCO’s mediocre performance

“Performance has been mediocre, but I think the outflows more reflect concerns about the leadership going forward,” David Schawel, vice president and fixed-income portfolio manager of Square 1 Financial, was quoted as saying in the Reuters report. “It can take time for institutions to reallocate, and we’re probably still seeing this in these outflows.”

Newport Beach, California-based Pimco had $1.97 trillion in total assets under management as of June 30, the report noted. Perhaps the biggest beneficiary of Pimco’s loss is fellow Californian Jeffrey Gundlach of DoubleLine Funds, Pimco’s major competator, which has witnessed inflows of $562 in August, its seventh straight month of asset gains.