Former PIMCO CIO Bill Gross, now of Janus Capital.Moody’s has put a price on the departure of PIMCO’s “bond
king” for parent company Allianz.
PIMCO’s owner is likely to lose hundreds of millions of euros in revenue, according to rating agency Moody’s, as investor sentiment turning away from fixed income has combined with founder Bill Gross’ exit to create a perfect storm.
In its latest credit outlook, the agency set out three possible scenarios for Allianz in the aftermath of a draining September.
“We expect the departure of the star manager to result in higher outflows at PIMCO and lower profits at Allianz SE, a credit negative,” the report said.
To set out its three scenarios, Moody’s used UK equities manager Neil Woodford’s departure from Invesco last year as a base for its projections. Woodford’s departure sparked outflows of 10% from his former employer, amounting to $4.8 billion.
Already PIMCO’s losses dwarf that figure, although Gross’ flagship fund is still the world’s largest, and is multiple times larger than Woodford’s.
PIMCO’s Total Return Fund saw outflows of a record $23.5 billion in September, the company admitted yesterday. “Of note, the largest daily outflow occurred on the day of Bill Gross’s resignation from the firm, while outflows on the two following days were considerably smaller,” it said.
This contributed to the $42 billion the firm as a whole had seen pulled out by investors in the first half of the year, totaling more than $65 billion in 2014 so far.
According to Moody’s calculations, outflows of $91 billion would constitute a 5% drop across the year. It would pull down total Allianz assets to $1.72 trillion by the end of 2014 and reduce net income to the parent company by 6.35% to €5.9 billion ($7.3 billion).
A 10% outflow—like that seen at Invesco—would pull assets down by $181 billion and reduce net annual income to €5.8 billion. A 15% outflow would see $272 billion run out of the door and cut net annual income by more than 9% to €5.7 billion.
“PIMCO has some ability to reduce costs, but overall we expect Allianz SE’s asset management segment to generate lower profits as a result of this development,” said Moody’s. “Lower profits will reduce Allianz SE’s debt service capacity, as measured by its earnings coverage ratio.”
Allianz’s Frankfurt-listed shares tumbled 4.8% on the news of Gross’ departure—from €136.38 on Thursday’s close to €129.9 on Friday. At the end of trading yesterday it was down 6.8% on Thursday’s figure at €127.12.
In contrast, Janus Capital—Gross’ new employer—saw its stock rocket, from $11 a share on Thursday’s close to $15.9 at its highest point on Friday—an increase of 43.5%. Yesterday, it closed slightly down, at $14.40.
Regarding Gross’ departure from PIMCO, Moody’s said that although the move was significant—asset management is Allianz’s second-largest income generator—the company was not “overly reliant” on PIMCO’s revenues.
This morning, PIMCO’s global CIO for fixed income Andrew Balls told the UK’s BBC Radio Four that Gross had been stepping back from day-to-day management for about a year and the Total Return Fund’s process had not changed.
Related Content:Too Big to (Not) Fail & Bill Gross: Not the King of Bond Markets, After All?