Bill Gross Departure Not Seen as ‘Imminent Risk’ to Pimco Total Return Fund

Updated from 10:45 a.m. ET with Pimco and Allianz comments.

NEW YORK (TheStreet) -- Research firm Morningstar doesn't believe Bill Gross's surprise departure from Pimco will pose an immediate risk to the firm's flagship Pimco Total Return Fund (PTTAX)  mutual fund.

That bond fund, which had been managed by Gross since 1987, has had about $10 billion in outflows since the announcement on Friday of Gross's surprise move to Janus Capital Group (JNS) .

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"We do not believe that these changes of Bill Gross's departure cause an imminent risk of significant outflows from the fund," said Morningstar's Michael Herbst, director of manager research for active strategies in North America.

As of Friday, the fund had $221 billion in assets under management.

Herbst said Pimco's Total Return Fund owns highly liquid fixed-income assets, meaning that only a sustained rise in outflows would cause the performance of Gross's Total Return Fund to suffer, potentially affecting broader fixed-income markets.

Morningstar has withdrawn its ratings on the Total Return Fund as it weighs the impact of Gross's departure and Pimco's appointment of Mark Kiesel, Mihir Worah and Scott Mather to manage the fund.

"We are very familiar and very comfortable with these three managers," Morningstar's Herbst said of the promotions. Kiesel was Morningstar's manager of the year in 2012. Worah is an expert in real estate and Mather an expert in global bond allocation.

Sweeping Change at Pimco

On Friday evening, Pimco made a series of promotions and new assignments in an effort to respond quickly to Gross's departure and restore investor confidence in the over $2 trillion bond fund manager.

Daniel Ivascyn, a long-time top manager at Pimco, was appointed the firm's group chief investment officer, while five other portfolio managers were given CIO roles.

The firm elected Andrew Balls, Virginie Maisonneuve, Kiesel, Mather and Worah as CIOs. Worah will also work with Balls to manage Pimco's trading floors globally. Ivascyn will work with portfolio managers Saumil Parikh and Mohsen Fahmi to manage Pimco's Unconstrained Bond Fund.

"The management and investment structure put in place in January as well as the thorough succession planning gives us complete confidence in PIMCO's investment and executive leadership team," Allianz CEO Michael Diekmann said in a statement.

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Germany's Allianz owns 70% of Pimco after acquiring a majority stake in the asset manager for $3.3 billion in 2000.

Todd Rosenbluth, director of exchange-traded fund and mutual-fund research at S&P Capital IQ, noted in a Friday interview that top managers such as Ivascyn and Worah have shown strong performance in recent years, oftentimes topping Gross's returns with their funds. Nonetheless, Rosenbluth believes Gross's departure will cause some Pimco fund investors to move their money elsewhere.

Pimco CEO Douglas Hodge said on Monday that newly appointed CIOs were responsible for the management of three-quarters of the firm's assets prior to Gross's departure. Gross managed Pimco funds with $350 billion in assets under management.

"This is an extremely talented group," Hodge said.

Total Outflows Expected to be Higher

The Wall Street Journal reported that Pimco is preparing internally for about $100 billion of aggregate outflows because of Gross's departure. Separately, Vincent Lui, a Morningstar stock analyst covering insurers, said "it is likely that tens of billions, if not hundreds of billions in AUM, will follow Gross to Janus from Allianz."

Were those amounts of outflows to be spread across Pimco's total portfolio, it could prove manageable given the size of the asset manager.

There's only been one Market Day since the resignation of Bill Gross at PIMCO, so it's too early to provide an estimate on potential outflows and subsequent impact on profits," Allianz CEO Diekmann said in a Monday conference call with analysts and investors. "We might expect some redemptions, but it's really too early to quantify that," he added.

Gross's Total Return Fund had significant outflows even before his exit. In September, the fund reported its 16th consecutive month of outflows, putting total redemptions above $60 billion during that period.

Some Air Cleared

Diekmann said on Monday there was no indication Gross resigned from Pimco as a result of an ongoing Securities and Exchange investigation into an exchange-traded fund mimicking the performacne of his Total Return Fund. ""We were not given any indication that Bill Gross departure last week was related to the ongoing SEC investigation," Diekmann said.

A source familiar with Janus's hiring of Gross told TheStreet on Friday that the SEC probe had been considered in the firm's vetting process.

Hodge, the Pimco CEO, also said that the firm's fallout with Gross related to differences on management style and not investment strategy.

Pimco spokesman Michael Reid didn't respond to an email seeking comment. 

Must Read: Bill Gross Quits Pimco Amid Controversy

-- Written by Antoine Gara in New York

Follow @AntoineGara

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