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Opinion

Macaskill on markets: Corporate bond buyers loom larger

If Pimco did manage to score a $375 million profit by securing an allocation of $8 billion of the Verizon $49 billion bond that delivered roughly $2.5 billion of paper gains to investors after it was launched last September, then it was a rare bright spot in a tough year for Mark Kiesel, global head of corporate bonds at the fund management firm.

Pimco’s specialist investment-grade corporate bond fund managed to slightly outperform its benchmark – the Barclays US credit index – in losing 1.69% for 2013, when the index was down by 2.01%. But the fund also shed almost half of its assets under management, with a fall from $10.2 billion to $5.6 billion, and there have been further minor outflows this year, despite a relatively solid return of just over 4% for the year to late April.

The outflows by percentage of assets for the corporate bond fund were much worse than at Pimco’s benchmark Total Return fund, which has drawn headlines by suffering withdrawals of over $50 billion of investor money in the past year – a hefty amount, but still less than 20% of its assets.

The Total Return fund, which is personally managed by Pimco founder Bill Gross, invests in corporate bonds along with its core treasuries and mortgage holdings, and remains enormous – at $232 billion by the end of March 2014 – which helps to explain why Pimco might have wanted to secure as much as 16% of the total amount of the Verizon bond, which set a record for a new corporate debt issue last year.

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