Carlyle fund cashes in on Pimco upheaval

Carlyle, the private equity firm, has emerged as one of the big winners from management turmoil at Pimco, as bond managers continue to fight over tens of billions of dollars in client assets that are up for grabs.

Carlyle-owned TCW, based in Los Angeles, has snatched more money away from Pimco than any other firm in the six months since Bill Gross dramatically quit as Pimco's chief investment officer.

TCW's main bond fund has been swelled by $27bn in new money and analysts and rivals expect the firm will win a new round of investment mandates from institutions such as pension funds, many of which are still assessing their relationship with Pimco.

The fallout from Mr Gross's resignation, after months of infighting and on the eve of a move to oust him, is likely to continue for much of this year, since institutions typically require months to approve a change of manager for their separately managed accounts.

Quarterly figures for Pimco's assets under management, due later this month, are expected to show another drop from $1.27tn at the end of December and $1.47tn in September, excluding assets managed for its parent company Allianz. On Thursday, it said its largest fund, the Pimco Total Return bond fund, shed another $7.3bn in assets in March, taking the total lost since Mr Gross left to more than $100bn from that fund alone.

TCW's assets jumped by 22 per cent to over $175bn in the five months to the end of February. Its flagship MetWest Total Return Bond Fund took in an estimated $26.3bn over that period, according to Morningstar, and now holds $64.5bn of client money.

Its inflows over that period were more than twice those of the next most successful fund, the Dodge & Cox Income fund.

"It is a competitive market and we have to fight for every dollar," said Olivier Sarkozy, head of Carlyle's global financial services group. "Asset growth continues to be significant at TCW but where it is coming from is now less from mutual fund assets and more from separately managed accounts, where we are in the early stages of seeing accounts shifting."

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The movements come as institutional investors re-evaluate their fixed income holdings, not just in light of the upheaval at Pimco but also in light of the Federal Reserve's likely shift to tighter monetary policy. Rising interest rates depress the value of bonds, potentially acting as a headwind to traditional bond funds.

Fixed income managers are pitching a wider range of products, including so-called "unconstrained" bond funds that have the ability to bet against parts of the fixed income market as well as to buy bonds.

BlackRock and Legg Mason, parent company of Western Asset Management, are among the quoted asset managers to have also benefited from the fallout at Pimco and who are now pitching to win large institutional business.

Daniel Fannon, an analyst at Jefferies, said "the Bill Gross effect" had shaken up fixed income asset management, with consequences even more profound than the current period of client withdrawals.

"While outflows at Pimco will continue to moderate, more importantly Pimco is no longer the 'automatic' safe selection" for institutional and retail investors, Mr Fannon told clients.

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