Following poor performance and the controversial departure
of co-CIO and CEO Mohamed El Erian, Pimco’s Total
Return Fund had suffered 12 consecutive months of outflows by
the beginning of May this year.
The world’s largest bond fund now has $230
billion under management, down from the $292.9 billion it had
in April 2013. In percentage terms that is an 18.8% fall, but
what it actually means is that clients have withdrawn $55.26
billion from the fund over the past year.
That is nearly equivalent to the entire assets under management
of UK fund manager Man Investments as at December 2012 ($57
billion) and is an indication of the kinds of numbers that are
now involved when funds of this magnitude experience a change
Mohamed El Erian
The sheer size of the largest asset managers now in the
market has been a topic of discussion for some time, with
regulators and market participants alike fretting over the
implications of individual institutions and funds having
reached such magnitude.
The shrinking of sell-side balance sheets has coincided with
a staggering increase on the buy side, raising concern over
what impact the sheer size of these buyers – and the
size of tickets they need to fill – is having on the
primary allocation process itself.
The likes of BlackRock and Pimco argue that while they do
now manage trillions, this is across all asset classes and
strategies, so the impact is not as great as their critics
claim. Some also dispute the perception that larger players now
have a greater influence on allocation by arguing that this is
the reverse of what is actually true.
In the past in markets such as high yield bookrunners maybe
only saw 10 accounts for a deal so if those 10 accounts said
yes you had a deal and if they said no you didn’t
have a deal. Now there are so many buyers that individually
they have less pricing power despite their enormous size, they
Others grumble that the size of the largest asset managers
means that they now exert undue influence over allocation,
leaving even the good-sized players squeezed out of the
running. The dealers themselves are at pains to emphasize the
importance of a diversified order book, saying that they
canvass the large guys to find capacity and the small guys for
However, with the deals themselves getting increasingly
large as well, the big buyers are now so important that every
borrower knows that they need them in the book and these are
the firms that they want to see on the roadshow.
Indeed, the relationship between issuers and large investors
has become so important that very large buyers are often
covered in a similar way to a sovereign wealth fund and have
direct discussions with the issuer. With access such as this
their influence over who that issuer’s bonds
actually go to can only increase.