Business & Real Estate

Despite turmoil, CalPERS sticks with bond giant Pimco

Embattled investment giant Pimco is without its founder and most famous executive but has retained the loyalty of an influential investment partner: CalPERS.

The California Public Employees’ Retirement System, not shy about shaking up its portfolio, announced Friday it’s sticking with Pimco, the troubled Newport Beach bond firm that manages $1 billion of the pension fund’s money.

The CalPERS statement followed the blockbuster announcement earlier in the day that Pimco founder Bill Gross was jumping to rival investment firm Janus Capital Group Inc. The departure of Gross, the so-called “Bond King,” came three days after The Wall Street Journal reported that the Securities and Exchange Commission was investigating alleged irregularities in a Pimco-run bond fund that caters to small investors. There were reports that Gross was on the verge of being forced out at Pimco.

CalPERS said it is keeping an eye on Pimco but doesn’t plan to alter the $1 billion global bond fund managed by the Newport Beach firm.

“We will continue to monitor developments at the firm, and will conduct a thorough analysis of our exposure managed by them,” CalPERS said in a prepared statement. “We have no plans at this time to make changes with our Pimco mandate.”

CalPERS said the Pimco fund earned an 11.2 percent profit in the latest fiscal year, which ended June 30. By comparison, CalPERS’ entire $66 billion bond portfolio earned an 8.3 percent return. Bonds represent about one-fifth of all CalPERS investments.

California’s pension fund for teachers, CalSTRS, said it doesn’t have any money invested with Pimco.

Just over a week ago, CalPERS made waves on Wall Street by announcing it would sell off its $4 billion worth of hedge fund investments.

But CalPERS made clear that it sees no reason to panic over the turmoil at Pimco.

“As a very long-term investor, we don’t make knee-jerk reactions to news,” said Ted Eliopoulos, the pension fund’s new chief investment officer, in an interview Friday on Fox Business Network. “This is a very big development at Pimco. We have great respect for Mr. Gross and for the investment professionals at Pimco. So we will make an assessment.”

Eliopoulos, who’s been with CalPERS for more than seven years, was named chief investment officer barely a week ago.

Gross’ departure caps several tumultuous months for Pimco, or Pacific Investment Management Co., which he founded in 1971. The company’s chief executive and Gross’ heir-apparent, Mohamed El-Erian, left earlier this year after a public falling-out between the two men. The Journal reported that investors have pulled tens of billions of dollars out of Pimco bond funds in the past year or so.

As for the SEC investigation, the Journal said the agency is examining whether Pimco “artificially boosted the returns” of a $3.6 billion investment vehicle, known as Pimco Total Return ETF, to make it look more attractive to investors. An ETF is a fund that’s publicly traded, like a stock. The Journal said the investigation has been under way for a year.

Whatever the troubles Gross was facing at Pimco, news of his hiring by Janus Capital sent that company’s stock soaring 43 percent, to $15.89 a share on the New York Stock Exchange. Shares of Pimco’s parent, German insurer Allianz, dropped 6 percent to $16.37.

The New York Times, quoting anonymous sources, said Pimco had decided to force Gross out, and Janus announced his hiring shortly before Pimco could issue an announcement about his departure.

Pimco downplayed the impact of Gross’ move.

“The management and investment structure put in place in January as well as the thorough succession planning give us complete confidence in Pimco’s investment and executive leadership team,” said Michael Diekmann, chief executive of Pimco’s parent Allianz SE, in a prepared statement. Allianz is a German insurance and financial services conglomerate.