Pimco funds in Europe worst hit in ‘year of carnage’

This year is likely to go down as one many asset managers would like to forget, with several of Europe’s biggest groups on target to end the year nursing multi-billion-euro outflows.

According to data from Morningstar, US bond giant Pimco had suffered net outflows of almost €27bn in Europe by the end of October this year — the largest of any asset manager operating in the region. The firm has been hard hit by the bond market selloff this year, as fixed income investors have taken flight amid rising interest rates and predictions that 2022 could be the worst year on record for the asset class.

“2022 has been a year of carnage, as central banks have gone into overdrive with rate hikes,” said Amin Rajan, chief executive of consultancy Create-Research.

“The vast majority of funds — the good, the bad, and the ugly — have been hit indiscriminately. Idiosyncratic factors have been at work, too. But they have been overwhelmed by quantitative tightening, which shows no sign of ending.”

Pimco’s flagship Income strategy has been the main casualty this year, posting net outflows of €6.6bn, while its Diversified Income fund has shed a net €3.7bn. Its GIS Income fund — the largest active fund in Europe — has had only one positive month for flows during 2022.

“Pimco GIS Income is no stranger to large flows,” said Mara Dobrescu, Morningstar’s director for manager research. She added that investors tend to pull money from the fund when market sentiment turns sour.

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The fund endured pain early in 2022, having carried between 2% and 3% in bond and currency exposures to Russia, according to Morningstar.

“Though its €6.6bn net outflow year-to-date may seem staggering, the fund has seen similar swings in other downturns — shedding more than €13bn in the first quarter of 2020. Meanwhile, in more benign market conditions, flows have usually turned positive,” said Dobrescu.

Pimco, which declined to comment on the figures, is not the only big name fund management group at the bottom of the sales table.

BNY Mellon Investment Management’s fund management arm Insight Investment has also been hit by tough market conditions.

The £683bn division posted net outflows of €17.7bn to the end of October. Short-term bond funds exposed to liquid asset-backed securities and the pound were among those that suffered the most. Insight’s GBP Liquidity Plus and High Grade ABS funds collectively shed more than €11bn between them.

“Where a pension scheme has a liability hedge in place, it will also identify appropriate sources of liquidity to ensure it can meet associated collateral calls,” said a spokesperson for Insight Investment.

“As interest rates increase and collateral is required, liquid assets such as ABS are sold to top up collateral pools.  With bond yields rising over the course of this year, Insight has been working with pension schemes to support any top-ups required.”

Eurizon, meanwhile, the asset management division of Intesa Sanpaolo, is also among the worst-selling groups in Europe with outflows of €12.2bn to the end of October. A short-term bond fund was responsible for most of the redemptions.

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Eurizon disputed this figure, citing data from Italian fund management association Assogestioni showing outflows of €4bn. However, this takes into account money-market funds and flows for its Epsilon subsidiary, which are not included in the Morningstar analysis.

Edinburgh-based Baillie Gifford is also languishing at the bottom of the European sales table, having posted net outflows of €10.9bn. The asset manager, which attracted positive inflows every month between April 2020 and December 2021, has ended each month this year with outflows. October was its worst month for UK outflows in more than 10 years, according to Morningstar.

Its Diversified Growth fund has been the biggest casualty, with €2.6bn pulled since January. Baillie Gifford declined to comment.

Meanwhile, Swiss banking group Credit Suisse endured a tough year following a string of scandals. But its asset management arm is also on track for a dire 2022, having bled €9bn since January. It notched up seven consecutive months of net outflows, with October’s €3.2bn outflow marking its second-worst ever month, according to Morningstar.

Most of the outflows have been concentrated in funds exposed to the healthcare sector and its range of global large-cap blend equity funds. Credit Suisse declined to comment.

Laith Khalaf, head of investment analysis at AJ Bell, said asset managers across the board have endured a brutal year. Headwinds, including rising interest rates, have tempted…

Read More: Pimco funds in Europe worst hit in ‘year of carnage’

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