Exodus From Pimco Fund Slows

The flood of money out of Pacific Investment Management Co.'s flagship Total Return fund slowed in May to its lowest level since last fall's departure of star manager Bill Gross, people familiar with the matter said.

Investors pulled about $3 billion in assets from the $110.4 billion bond fund last month, these people said. It was the fifth successive month that outflows dropped, according to fund-research firm Morningstar Inc., and the amount was the smallest since Mr. Gross exited abruptly last September.

The slowdown is another sign that the money manager is stabilizing after more than a year of turmoil at the firm. Some clients that pulled money last year or placed the firm on internal watch lists are returning to Pimco as Mr. Gross's successors post stronger performance compared with rivals.

The fund, which invests in U.S. Treasurys and corporate bonds, has returned 1.23%, including expenses, so far this year through the end of May. Its benchmark, the Barclays U.S. Aggregate Bond Index, returned 0.99%, according to a preliminary estimate from Morningstar. Total Return is

beating 61% of similar funds.

Following internal strife with other executives last year, including former Chief Executive Officer Mohamed El-Erian, Mr. Gross left to run a smaller bond fund at rival Janus Capital Group Inc. Mr. Gross co-founded the Newport Beach, Calif., firm in the 1970s, served as its chief investment officer and was its public face across business media and through monthly letters to investors.

The first full month after Mr. Gross's departure, investors pulled $27.5 billion from the fund, setting a mutual-fund industry record for the largest monthly outflow ever. In April, Total Return ceded its title of world's largest bond fund to an index fund run by rival Vanguard Group.

Since outflows began in May of 2013, investors pulled $182 billion from the Total Return fund over 24 consecutive months before May, whittling its asset size down from a peak of $293 billion to $110.4 billion at the end of April. Official asset figures for May aren't yet available.

The smaller outflows don't mean Pimco, a unit of Germany's Allianz SE, is free of problems yet. Analysts have warned that fund outflows could spike if performance drops or if the firm suffers any more big-name departures.

Not all clients are convinced that Pimco has recovered, either. The deferred-compensation plan for the city and county of Denver pulled its investment in Total Return and moved it to the Metropolitan West Total Return Bond fund earlier this year because of "uncertainty about the future," of the fund, according to a client memo reviewed by The Wall Street Journal.

A spokeswoman for the city's consultant didn't return a call for comment.

Mr. Gross's departure from Pimco set off an aggressive, all-hands-on-deck push by executives, portfolio managers and employees to keep investors with the firm, people familiar with their actions said.

That effort included hundreds of meetings with pension funds, consultants and other institutional investors, as well as sometimes weekly calls with some large clients, said investors and pension funds.

The Total Return fund now has a three-person management team of Scott Maher, Mark Kiesel and Mihir Worah and is overseen by group Chief Investment Officer Daniel Ivascyn.

The moves have helped persuade some investors to stay. The Teachers' Retirement System of the State of Illinois, a client of Pimco's since 1982, removed Pimco from its "watch list" in May as it became more comfortable with the portfolio-management team Pimco put in place before Mr. Gross's departure. Illinois executives flew out to see the firm in March at its headquarters, spokesman Dave Urbanek said.

"There was a clearly defined line of succession that engendered a lot of confidence," Mr. Urbanek said. The Illinois system has about $2.5 billion, or about 5.5% of its total $45.6 billion in assets under management as of March 31, with the firm.

One client that returned was the state of Wyoming, which in recent weeks decided to recommit $150 million with Pimco and plans to add more. Last year, it pulled about $900 million of its $2.7 billion investment due to uncertainty about the future of the firm, according to state officials.

The decision came after multiple meetings and phone calls with new Pimco leadership.

"We were very impressed with how they handled themselves," said Mark Gordon, Wyoming's treasurer.

Fadi BouSamra, chief investment officer at the Metropolitan Employee Benefit System for the city and county of Nashville, Tenn., said he had many phone conversations and in-person meetings with Pimco executives in Newport Beach, Nashville and New York before the system decided to keep its more than $300 million invested across Pimco's bond strategies.

"I have a great deal of respect for Bill Gross and what he accomplished, but we also knew the team that was there and the portfolio managers that we had," Mr. BouSamra said.

Write to Kirsten Grind at [e-mail]

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