Rivals Outdo Gross in Race For Bond Cash -- 3rd Update

By Kirsten Grind 

Of the torrent of cash that left Pacific Investment Management Co. in the past six weeks, only a trickle appears to have followed Bill Gross to his new home.

Since Mr. Gross joined Janus Capital Group Inc. on Sept. 26, his new fund has attracted about $430 million in new money, or less than 1% of the $50 billion that has left his old fund at Pimco in the past two months.

Still, the influx of cash helped Janus in October post its first month of net inflows in more than three years, according to figures released Monday by Morningstar Inc.

Other firms also are emerging as big winners from the shakeout caused by Mr. Gross's surprise exit from Pimco, the $1.9 trillion asset manager based in Newport Beach, Calif.

While it is impossible to know where the new cash is coming from, rival firms Vanguard Group Inc. and TCW Group Inc. saw record flows into their bond funds in October, the companies said Monday.

Billions more flowed to mutual-fund firm Dodge & Cox; BlackRock Inc., the world's largest asset manager; and DoubleLine Capital LP, according to Morningstar.

The "bigger, more established players seem to be getting bigger chunks relative to Janus," said analyst Michael Kim of advisory firm Sandler O'Neill + Partners.

The figures come as rivals have been stepping up their advertising and outreach targeting former Pimco investors. BlackRock, for example, has paid to have its website listed when people search Google for "Bill Gross" and "Pimco," according to people familiar with the matter. Those that search for "Pimco Total Return fund"--Mr. Gross's former fund--typically see BlackRock as the second name on the list of results.

Investors pulled a net $23.5 billion from the Pimco Total Return fund in September and another $27.5 billion in October following Mr. Gross's departure, according to the company. Most of those outflows took place in the days after Mr. Gross left.

The shifting of assets in such volumes is highly unusual: Over the past two decades, no other event has sparked the movement of so much money among bond funds, according to industry observers and analysts.

The investor cash was a boon to Mr. Gross's new home, as Denver-based Janus saw $1.1 billion in inflows across its mutual funds during October, the most in a month since 2007, according to Morningstar. The firm has about $100 billion in total mutual-fund assets, according to Morningstar.

But the October flows, in which it collected a net $364 million in new investor money, were smaller than many expected.

"I'm surprised it wasn't larger," said Greg Carlson, an analyst at Morningstar.

In a statement, a Janus spokesman said, "We are doing exciting things here at Janus Capital and are pleased it is beginning to be recognized by clients and advisors. Our story features Bill Gross and his Global Unconstrained Bond fund, of course, but has been underway for some time and is much deeper than Bill alone."

Analysts say it could take months before Mr. Gross is able to fully build his new fund. But he could also have trouble persuading large institutional investors to move their money. Those clients typically seek funds with longer track records and more money than Mr. Gross has in the Janus Global Unconstrained Bond fund before they will consider investing, analysts say.

Scott Seidle, the chief investment officer for Purdue University's $2.4 billion endowment, says the endowment has about 3% of its assets, or $80 million, invested in the Pimco Total Return fund. Purdue placed the firm on a "watch list" following the departure of Mr. Gross, and isn't following him to his new fund.

"It would be pretty rare" for Purdue to put money in a fund with such a short track record, Mr. Seidle said.

Mr. Gross also could be hamstrung by his fund's new strategy. While a total-return fund typically invests largely in U.S. Treasurys and other generally safe investments, an unconstrained bond fund has a looser mandate that allows it to take more risks. That makes it harder to persuade institutional investors to move money, according to analysts and consultants.

At Janus, Mr. Gross's performance has been mixed.

Morningstar said it doesn't have benchmark information for the Janus Global Unconstrained Bond fund. According to a company fact sheet, the fund is comparing itself with Libor, the London interbank offered rate, a rate that banks globally charge on short-term loans.

Between Oct. 6 and Nov. 6, Mr. Gross's first full month at the helm of the fund, the Bank of America three-month U.S. Dollar Libor interest rate returned 0.022%, compared with 0.157% for Mr. Gross's fund, according to Morningstar.

The Barclays Aggregate U.S. Bond index, a standard measure for many bond funds, meanwhile, returned 0.422% during that time.

For his part, Mr. Gross isn't just waiting for money to come to him. He is looking to hire a portfolio manager to travel around the country and meet with clients, as Mr. Gross himself doesn't like to fly, according to people familiar with his plans. Janus also has been marketing his fund online and in newspaper advertisements, as well as through client outreach.

While Mr. Gross's arrival at Janus has created a "halo effect" that is boosting inflows across the company, Janus's equity funds are still suffering outflows, says Mr. Kim.

"You're starting to see signs of the benefit of Bill coming on board, but it's still a gradual process," Mr. Kim says.

Write to Kirsten Grind at [e-mail]

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