Allianz’ PIMCO Axes Jobs in Response to Fall in Assets after Gross’ Exit

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Pacific Investment Management Co. cut its workforce by 68 people, or about 3 percent, and is offering buyouts as assets under management have fallen in recent years, according to a memo obtained by Bloomberg.

“Like any responsible business, PIMCO constantly adjusts its resources to capitalize on changing markets and investment opportunities for clients,” spokesman Michael Reid said in an e-mailed statement. “Our current business plans will reduce expenses in some areas while, of course, ensuring investment and hiring in others.”

PIMCO’s $1.5 trillion in assets under management are down 25 percent from a high of $2 trillion in the first quarter of 2013. Bill Gross, who co-founded the firm in 1971 and built PIMCO Total Return into the world’s biggest mutual fund at its peak, left abruptly in 2014.

“The competitive demands of this industry require that we continually adapt and innovate to meet evolving client needs,” according to the memo signed by top executives. “Today is a difficult day for all of us at PIMCO, but most importantly, for those affected by these decisions. The firm is providing support to those affected and we thank them again for their contributions.”

The firm is closing six dividend-income strategy funds led by a team including money manager Brad Kinkelaar with about $260 million in assets, according to the memo.

PIMCO is converting its equity exposure to Research Affiliates Equity Income Fund. A year ago, the firm cut most of its in-house equities funds, leading to the departure of Virginie Maisonneuve, the deputy chief investment officer overseeing the traditional bond shop’s attempt to expand its business as a stock picker.

Research Affiliates, founded by Rob Arnott, is already PIMCO’s only sub-adviser. Both firms are based in Newport Beach, California.

Fox Business reported the job reductions earlier Thursday [June 16].

‘Facing Challenges’

The moves reflect the struggle active stock and bond pickers face in today’s marketplace, said Todd Rosenbluth, director of exchange-traded fund and mutual fund research at S&P Global Market Intelligence.

“Asset managers with a significant base of business from active funds are facing challenges from the trend toward passive ETFs,” Rosenbluth said. “While collectively fixed-income mutual funds continue to gather new money, PIMCO’s funds have experienced significant outflows in 2015 and the redemptions have continued in 2016.”

PIMCO reported about 2,300 total employees at the end of the first quarter, down 4 percent from 2,400 a year earlier. The firm reduced the number of investment professionals by about 5 percent to 720, according to its website. Other money managers, including BlackRock Inc., Franklin Resources Inc. and Grantham Mayo Van Otterloo & Co., have also been cutting staff this year as they compete with low-fee competitors such as Vanguard Group.

Assets at the PIMCO Total Return Fund fell to $86 billion in May from a 2013 peak of $293 billion. Other funds that have been bleeding assets include the PIMCO Emerging Local Bond Fund and the PIMCO Unconstrained Bond Fund.

PIMCO has about $40 billion in equity assets, according to the memo signed by group Chief Investment Officer Dan Ivascyn, Chief Executive Officer Douglas Hodge and President Jay Jacobs. In June 2015, when PIMCO started six funds using Arnott’s strategies, it had more than $50 billion in equity assets under management, according to a statement at the time.

‘Growth Potential’

PIMCO may look to boost its roughly $25 billion in alternative strategies, including investments in hedge funds, private equity and real estate, according to the memo.

“We also see growth potential in a range of areas including alternatives, private credit, solutions, client analytics, and regionally in many parts of the world, not to mention the increasing investor demand for many of our non-traditional strategies,” Ivascyn, Hodge and Jacobs wrote. “We know that the role of active management has never been more important to client portfolios.”

Research Affiliates uses rules-based strategies that rely on picking undervalued assets to outperform indexes — with mixed results. Assets at the PIMCO RAE Fundamental Plus Fund dropped to $1.74 billion in May from a high of $4.3 billion in August 2014 as returns trailed the benchmark S&P 500 Index over the trailing three years. In 2016, the fund is up 4.3 percent, beating the index.

Assets have also declined at Arnott’s PIMCO All Asset and PIMCO All Asset All Authority funds, which use Research Affiliate strategies to invest in other PIMCO funds. All Asset All Authority is up 7 percent this year, beating 98 percent of its Bloomberg peers, and All Asset has returned 6.4 percent, besting 96 percent of its competitors.

Arnott didn’t immediately reply to a request seeking comment on PIMCO’s changes.

Allianz’s Views

PIMCO’s Munich-based parent, Allianz SE, reported in May that its asset-management business had a 17 percent drop in first-quarter earnings as investors pulled money from the U.S.-based firm. The cost-to-income ratio at PIMCO worsened to 64.1 percent in the first quarter from 62.5 percent a year earlier as reduced operating expenses failed to compensate for lower operating revenue. Higher performance fees were expected to improve the ratio in the second half of the year, Allianz said.

“Although we anticipate a challenging environment for the asset-management industry, we continue to expect positive net flows at PIMCO in the second half,” Allianz Chief Financial Officer Dieter Wemmer said in the statement.

Gross, who now manages the $1.4 billion Janus Global Unconstrained Bond Fund, has sued PIMCO for hundreds of millions of dollars, claiming he was ousted by a “cabal” of managers who wanted a larger share of the firm’s bonuses. PIMCO has denied the allegations and contends in a response to the lawsuit that Gross abandoned the firm, leaving behind a last-minute handwritten note of resignation.

“Mr. Gross ended his career at PIMCO with no notice or transition, disregarding the potential impact on the individual and institutional clients whose assets he was responsible for managing,” the firm said in an April court filing.

–With assistance from Miles Weiss.

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