California’s college savings plan has joined the exodus from a bond fund run by Pimco, the troubled Newport Beach investment firm.
ScholarShare, the state’s 529 college savings plan, said last week it has withdrawn its $262 million from the Pimco Total Return Fund. The decision came after Pimco founder Bill Gross left the firm in September to join Janus Capital Group, a move that has prompted many other investors to sever ties with Pimco.
“ScholarShare did not take this step lightly,” said state Treasurer Bill Lockyer, chairman of ScholarShare’s investment board, in a prepared statement. “Pimco is a top-echelon California company. And we’re confident it will emerge from the shakeup even stronger. But ScholarShare has a duty to protect the college savings of the thousands of families who have placed their money, and trust, in the program.”
Several institutional investors have deserted Pimco-run funds following Gross’ departure, although others, such as CalPERS, have said they are sticking with the firm at least for the time being.
The $262 million has been moved into a bond fund managed by New York investment giant TIAA-CREF, which oversees the state’s ScholarShare program.
ScholarShare isn’t leaving Pimco entirely. It continues to hold $98.3 million in Pimco’s Real Return Fund and $111.3 million in Pimco’s Income Fund, although they’ve been placed on “watch” status and will be closely monitored.
Tom Dresslar, a spokesman for Lockyer, said the Real Return and Income funds are managed by other Pimco executives and have continued to perform well.
Total Return, however, was managed by Gross, and, given the exit of other investors from that particular fund, “we decided it was best to get out,” Dresslar said in an email.
ScholarShare is a tax-advantaged program, run by the state, to encourage families to save for college tuition. It manages about $6 billion in assets. Like similar college-savings plans in other states, it’s authorized by Section 529 of the federal income tax code.
Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.