Pimco is expected to make staff cuts as a result of the flood of outflows the asset manager has seen since self-titled ‘Bond King’ Bill Gross left the firm.
Investment consultant NEPC has warned investors that it anticipates Pimco will make cuts to its non-investment staff as it scales back the business as a result of lower assets under management.
Pimco’s Total Return and Unconstrained Bonds funds saw outflows of around 50 per cent of total assets in the year since Gross left, leading to assets at the firm being down around 20 per cent.
In the minutes of a meeting to a US pension fund NEPC says: “From conversations with PIMCO, we have anticipated a scaling back of non-investment professionals. PIMCO has already slowed their hiring rate to allow natural attrition to rescale their business model.”
Pimco confirmed that it has a natural attrition rate of 10 per cent, but declined to comment any further.
A source close to the situation denied that the firm is undertaking a programme of staff layoffs.
NEPC says that the mass withdrawal of assets by investors could also have a knock-on effect on retention rates in the investment side of Pimco.
“PIMCO’s executive office has emphasised that there might be a scale backs on the client facing side due to lost clients but not the investment professional side which is already a lean operation in comparison to other firms with similar AUMs,” says NEPC.
“However, with bonuses being paid at the end of the year out of a smaller pool of profits, we could see increased turnover from the investment side as well,” says the note from NEPC.
The source close to the situation states that Pimco will aim to continue to remain market competitive for its investment staff, adding that “retaining talent is one of the really important parts of the business”.
Jake Moeller, head of UK and Ireland research at Lipper, says: “In any fund house the last thing that management want to do is to compromise their investment professionals.”
If Pimco does not protect it’s investment staff that could precipitate some senior departures, he adds.
“You could see the perfect storm of outflows, poor performance in the market, sales and ancillary staff departures and then senior investment staff departures,” he adds.
Pimco saw the largest outflows for any asset manager last year, according to data from Morningstar. The data, to the end of November 2015, showed that Pimco had estimated net outflows of £79.1bn. This is an improvement on 2014’s outflows of £176.2bn. For context, the firm with the next largest outflows was Franklin Templeton with £42bn in outflows for the first 11 months of 2015.
However, with interest rates rising the market for any bond manager could be difficult, says Moeller.
“In an increasing interest rate environment at some point it’s likely bonds will be more difficult to justify, but Pimco is still a strong brand,” he adds.
Bill Gross left Pimco for Janus in September 2014, following a period of turmoil for the manager and the company. Last year he revealed he was suing Pimco for “hundreds of millions of dollars” for wrongful dismissal.
The impact of the outflows was already seen last year. Accounts for 2014, the most recent available, already saw a 30 per cent cut in remuneration for UK directors of Pimco. In 2014 directors in Pimco Europe were paid £34.6m compared to £48.7m for 2013. The highest-paid director, who is unnamed, also took a pay cut, getting £22m in 2013 and £15.7m in 2014.
However, during 2014 the number of employees in the Pimco Europe business actually rose from 285 in 2013 to 302 in 2014. The renumeration cuts mean the period also saw a rise in profit before tax from £82.6m in 2013 to £87.7m in 2014.