A good catch from FundFire, on an offer of reduced fees for 12 months to a client thinking about leaving Pimco.
The fee structure was revealed in an memo to the San Luis Obispo County Pension Trust (SLOCPT) by its consultant Wurts & Associates, which has recommended that clients terminate their relationship with Pimco following the departure of chief investment officer Bill Gross for Janus.
The SLOCPT’s current fee structure includes a 0.5% fee on the first $25 million under management, 0.375% on the next $25 million and 0.25% thereafter. The proposed fee reduction would switch the pension over to a 0.05% (5 bps) base fee and a “15% participation rate for returns that exceed the index return plus the base fee (returns in excess of the index plus 5 bps).” The discount would “revert to current fee terms after 12 months.” PIMCO did not respond to requests for comment.
SLOCPT had a $209m global core mandate with the firm, and the memo was first spotted by MandateWire.
It comes after investors yanked $27.5bn from Pimco’s Total Return Fund in October, after withdrawing $23.5bn in September.
But, despite the lowered fees proposal, the $1.2 billion SLOCPT proceeded with Wurts’ recommendation to conduct a manager search to replace PIMCO. “The offer from PIMCO to lower fees was discussed, but was not persuasive in and of itself,” says Carl Nelson, CIO of the pension, adding that the pension agreed with Wurts’ argument for termination.
The fund has deferred the actual termination of PIMCO until it sees the results of the manager search, Nelson says. Wurts is due to share suggestions on November 24.
On the subject of fee cuts, note that they were happening before Mr Gross departed. Ignites, another FT publication, reported in September that Pimco had made a rare fee cut to a fixed income exchange traded fund.
Pimco recently chopped 6 basis points from the management fee on its Low Duration Exchange Traded Fund, a decision that highlights growing pressures the firm faces to adjust costs to win market share.
Last week it indicated in a regulatory filing that it would temporarily increase the ETF’s fee waiver to 8 basis points from 2. The decision follows Pimco’s plan to add three actively managed ETFs to its suite and liquidate four bond ETFs.
Reuters has also reported bond fund fee cuts elsewhere, with BlackRock joining late in October.
BlackRock’s fee cut, which follows similar changes by Lord Abbett and OppenheimerFunds, comes after the high-profile departure of Bill Gross from Pacific Investment Management Co in late September and could help the firm capture some of the outflows that are pouring out of Pimco, analysts said.
New York-based BlackRock, the world’s biggest asset manager, is lowering the fees on three of its bond funds, including its $4 billion Total Return Fund (MAHQX.O), according to a filing with the Securities and Exchange Commission on Monday. “BlackRock regularly evaluates fund fees and expenses to ensure that they remain competitive as the marketplace evolves,” a spokeswoman said in a statement.
Competition for the affections of consultants — the gatekeepers to a lot of institutional investor capital — is pretty intense right now. Here’s some intelligent analysis of what’s going on from Lipper’s Head of Research Jeff Tjornehoj, including the 92 basis point cost of the Janus fund that Mr Gross has taken over.