Pimco co-operating with SEC probe of fund’s asset pricing

PACIFIC Investment Management Company (Pimco) says it is co-operating with regulators examining how the firm assigned asset prices at Bill Gross’s Pimco Total Return exchange-traded fund (ETF).

“Pimco has been co-operating with the SEC (Securities and Exchange Commission) in this non-public matter, and we take our regulatory obligations and responsibilities to our clients very seriously,” spokesman Mark Porterfield said yesterday. “We believe our pricing procedures are entirely appropriate and in keeping with industry best practices.”

The probe is the latest hurdle for Pimco, which is dealing with

We believe our pricing procedures are entirely appropriate and in keeping with industry best practices

record redemptions at its main mutual fund and negative publicity stemming from the abrupt departure of its former CEO, which was followed by its biggest ever management overhaul.

Investors have pulled money for 16 straight months from Mr Gross’s Total Return mutual fund as returns trailed rivals and they sought alternatives to traditional fixed-income strategies in anticipation of rising interest rates.

The ETF, which employs a strategy similar to Mr Gross’s $221.6bn Pimco Total Return mutual fund, was started in March 2012 to attract what the firm described at the time as “mom- and-pop investors.”

Since March 1 2012, the Pimco Total Return ETF had returned 16%, compared with a 9.1% rise for the mutual fund and a 5.6% return in the Barclays US Aggregate Index for bonds, according to data compiled by Bloomberg. This year, the Pimco Total Return ETF has advanced 5%, compared with 3.6% for the mutual fund and 4.1% for the index.

The issues being probed by the SEC include whether the $3.6bn ETF bought investments at discounted prices while relying on higher valuations for the assets when it calculated the value of its holdings, the Wall Street Journal reported yesterday, citing unidentified people familiar with the matter. The SEC’s probe into pricing issues at Pimco has been going on for months, according to the newspaper, which also said SEC investigators have interviewed Mr Gross. Calls to the SEC were not returned.

Pimco’s parent company, Allianz, “has been kept regularly informed by Pimco about the SEC investigation”, said spokeswoman Petra Brandes.

The ETF attributed some of its outperformance against its benchmark to “an allocation to non-agency mortgages which benefited from limited supply and a recovery in the housing sector”, according to the latest quarterly report on its website.

While securitised debt represented 47% of the ETF’s holdings as of March 2 2012, more than three-quarters of them were the most easily valued type of government-backed Fannie Mae and Freddie Mac bonds, which do not trade at discounts in smaller sizes, according to data compiled by Bloomberg. The same was true at the start of the next month.

The fund is 25% invested in securitised debt, mainly less liquid securities without government backing, data show.