The problems of Pacific Investment Management Company (PIMCO) seemed to be piling up. Its emerging-market bond fund suffered significant losses due to its large bet on Russian-debt.
PIMCO emerging bond fund losses
Data compiled by Bloomberg showed that PIMCO Emerging Market Bond Fund owns $803 million in corporate and sovereign bonds as of September, which is equivalent to 21% of its total assets. The fund incurred 7.9% losses last month.
A related report from the Wall Street Journal reported that the performance of the fund benefited from its investment in Russian debt. However, its performance tumbled during the last quarters due to the negative impact of declining oil prices and the global sanctions that hit Russia’s economy. According to Morningstar, PIMCO Emerging Market Bond Fund lost 9% this month.
In June, Morningstar ranked PIMCO Emerging Market Bond Fund in the top 5% of the 106 emerging market bond funds. By December, its ranking fell to the 62nd percentile as its losses increased. The independent investment research firm said the fund suffered $3.3 billion in net outflows by the end of November.
Compelling risk-reward opportunities
Michael Gomez, manager of PIMCO Emerging Market Bond Fund said, “The investment themes in Pimco’s portfolios are based on long-term ideas and views. While emerging markets have been volatile, we think segments of the market offer compelling risk-reward opportunities for long-term investors.”
Gomez has been a long-time manager of the fund, and he recently focused making significant bets in markets like Russia and Mexico, which have reasonably high credit ratings. Russia still holds an investment grade from credit rating agencies, but its bonds are currently trading at junk-debt prices.
Investigation over potential violation of securities laws
The law firm Girard Gibbs LLP disclosed that it is investigating potential claims on behalf of investors who acquired shares in PIMCO Emerging Markets Bond Fund regarding possible violations of securities laws.
“This investigation concerns possible violations of federal and state securities laws arising out of the fund’s investment practices and possible misstatements or omissions the fund made in its public filings with the Securities and Exchange Commission,” according to Girard Gibbs.
The law firm also emphasized, “This year, Russia has experienced a significant financial crisis. Oil prices have plummeted and the ruble has lost more than half its value. Meanwhile, the fund’s investment in Russian bonds has remained significant.”
Last month, it had been reported that the SEC is ramping up its investigation against PIMCO. Fox Business Network senior correspondent, Charlie Gasparino reported that the commission was visiting the office of the global investment firm on a regular basis, and financial advisors noticed it increasing disclosures particularly the amount of its investment in emerging market debt.
PIMCO has been experiencing problems during a difficult time as it is exerting effort to rebuild its reputation in bond investing following the departure of its co-founder Bill Gross and former CEO Mohamed El-Erian.
In October, the global investment management firm was confronted with large assets withdrawals. The investors in its flagship Total Return Fund withdrew total of $27.5 billion. The fund’s assets under management dropped from $298 billion in April last year to $170.9 billion in October.