Losing Streak Pimco Exits Stocks Business

The Allianz subsidiary is losing its equities strategist and closing its most important equities funds, as customers continue to pull out their capital.
Virginie Maisonneuve is leaving Pimco after less than 18 months.

Virginie Maisonneuve, the head of the equities business at Pimco, will leave the California-based fund house in June after less than 18 months in the role, the company has announced.

The 50-year-old executive joined Pimco from its competitor Schroders in January 2014.

And if that were not enough, the Allianz subsidiary is closing three of its equities funds, including Pathfinder, which has been the core of the division. The move made it clear that the company has failed in its strategy of establishing itself in the equities business and overcoming its lopsided orientation to the bond business.

“The liquidation of the $886 million Pimco Eqs Pathfinder is unusual in light of its sheer size, and is a clear signal of some changes in Pimco’s equities business,” wrote research company Morningstar.

The fund was issued in 2010 and produced less than 8 percent yield per year, putting it almost 90 percent behind its competitors. The investment style of manger Anne Gudefin was “cautious” and not well received by investors, according to Morningstar. Ms. Gudefin’s co-manager left Pimco more than a year ago.

Pimco CEO Doug Hodge announced that in principle the company will hold on to its equities business. In January it even added seven new “equity strategies” to its offering, though these did not involve classically managed funds, but a bond selection based on an evaluation system.

Pimco and its parent company Allianz are now paying for an overly one-sided strategy.

This type of investment, somewhere between actively managed funds and passive funds, which simply follow an index, is called “smart-beta.” What is critical, however, is that the expertise is not coming from Pimco itself, but from its partner firm Research Affiliates.

These recent developments show that Pimco's strategy for developing from a pure bond house to one offering a wider palette of funds has fallen apart. The Allianz subsidiary has been following this strategy for years and even hired well-known economist Mohamed El-Erian to help with that goal. Mr. El-Erian had also been considered as a successor for Pimco founder Bill Gross, but the economist left the company at the beginning of 2014 amidst conflict.

After Mr. El-Erian's departure, Mr. Gross announced that the expansion of the range of products was still planned.

Mr. Gross himself left the company last September, and currently heads a small fund at Janus Capital.

Mr. Gross’ eccentric personality also played a role in the turmoil at Pimco, and, after decades of success, his luck with investment strategies ran out. Pimco and its parent company Allianz are now paying for an overly one-sided strategy.

As long as the interest rates dropped on the capital market, Mr. Gross masterfully generated above-average yields with investment in interest-bearing securities. But that changed with the major turnaround in interest rates in 2013, and since then, at least in the United States, the low point in bond yields has been surpassed.

For years, Pimco and Allianz were happy to leave things to one segment – bonds – and one man – Bill Gross. Allianz received a good portion of its profit growth from its subsidiary in California. Now, what was once the company's motor has turned into its brake.

Even before Mr. Gross’ departure Pimco was losing customers’ investments, and these losses have grown since then and have not yet stopped. In addition, the current capital market is much more difficult for bond funds than it was before. And the investors believe less in investment gurus such as Mr. Gross and are focusing more on cost-effective standard products that fit their needs.

Pimco does not appear to be breaking out of this situation, as the most recent developments show. There is hardly a place today for the old Pimco, as a specialist in active bond management – the market has changed too much.

 

Frank Wiebe is a Handelsblatt correspondent in New York. To contact the author: [email protected].