The departure of the world’s biggest bond fund manager, Bill Gross, from Pimco raises the threat of a liquidity shock in global fixed income markets, experts have warned.
If Mr Gross’s former employer is forced to sell holdings rapidly as investors pull out of his funds, which include the $221bn (£136bn) Total Return fund, the vast scale of transactions could lead to a breakdown in normal market dynamics with global knock-on effects.
The fund has already fallen sharply in size in recent months, as this year began with a public spat between Mr Gross and Pimco’s former chief executive Mohamed El-Erian, who left the firm in March.
Ryan Hughes, multi-manager at Apollo Multi Asset Management, said the bond market was already facing “interesting times” of low liquidity and Mr Gross’s move would have a “big impact”.
“Everyone knows Pimco will be a seller and once the market gets a sniff, pricing will be very difficult,” he said.
“People on the other side of the trade will bid them down and we could see prices across the board being affected because they may become a forced seller.”
Mr Hughes predicted the outflows “won’t be a slow trickle but will be fast and painful”, meaning the company might have to quickly sell its most liquid holdings and be left with troublesome illiquid holdings.
SVM Asset Management’s Colin McLean said the US high yield market was “not looking great even before Bill Gross’s exit from Pimco”.
“It could be a tough time to liquidate,” he added.
Brewin Dolphin’s head of research Guy Foster said Mr Gross was a manager on funds “which are mostly very liquid, and some unconstrained mandates.”
He said: “Some 60 per cent of the Total Return fund’s holdings are US government or agency securities.
“Investors should not be concerned with the fund’s ability to manage large withdrawals as a result of this announcement.”
However, he said there was “a risk of large withdrawals” in Pimco’s other less liquid funds and it was “difficult to judge how the market is going to cope”.
“We aren’t yet seeing any meaningful reaction in credit which is where the biggest risk would lie,” he said.
Chris Bowie, fixed income manager at TwentyFour Asset Management, was cooler on the prospect of immediate bond-market chaos.
He said such an issue would be unlikely to emerge in the first few weeks after the departure, but if there were “sustained outflows, then forced selling could lead to liquidity issues”.
“There is already a bit of nervousness in the bond market so this could be a catalyst, but I don’t think it will be an issue immediately,” he added.
Mr Gross also ran the $10bn Dublin-domiciled Pimco GIS Unconstrained Bond fund for European investors.
He starts at US rival group Janus today (September 29) – suggesting he may have had no contractual lock-in period.
News of the move on Friday (September 26) instantly hit Pimco’s parent group Allianz’s share price, which fell more than 6.5 per cent on the news. Janus’s shares rose 37.7 per cent when the US market opened as investors showed their appreciation for the hire.
Pimco, co-founded by Mr Gross in 1971, said it had a succession plan in place.
A statement from Mr Gross, published by Janus, said: “I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organisation.”
Pimco’s chief executive Douglas Hodge said he was “grateful” for all Mr Gross had done but added the firm and the manager had “fundamental differences” about Pimco’s future.
