SEC probes whether PIMCO ETF inflated bonds' value

Federal investigators are looking at how PIMCO's flagship exchange traded fund, PIMCO Total Return, bought some bonds at discounted prices then valued them differently, according to a Wall Street Journal report. 

Jim Young/Reuters/File
Bill Gross, co-founder and co-chief investment officer of Pacific Investment Management Company (PIMCO), arrives to speak at an investment conference in June in Chicago. The Securities and Exchange Commission is investigating whether Pimco inflated the returns of its Total Return Exchange-Traded Fund run by Mr. Gross.

U.S. regulators are investigating whether the way bond giant Pacific Investment Management Co. values its bond holdings may artificially boost returns of one of its largest funds, according to The Wall Street Journal, citing unidentified close to the matter.

How the $3.6 billion Pimco Total Return exchange traded fund bought some bonds at discounted prices and then relied on higher valuations for the assets when calculating the holdings' value is among the issues being probed by the Securities and Exchange Commission, the report said. 

This could create the appearance of quick price gains, and the SEC may be focusing on whether investors are getting a misleading picture of the fund's performance, the report added.

A spokesperson at Pimco, which manages nearly $2 trillion, told the newspaper that the fund manager has been cooperating with regulators. 

"We believe our pricing procedures are entirely appropriate and in keeping with industry best practices," the spokesperson said, while an SEC spokesperson declined to comment, according to the report.

The SEC and Pimco didn't immediately return emailed requests for comment. 

The article noted that it isn't clear whether Pimco's actions would be considered improper or how widespread this sort of valuation maneuver is among other bond managers.

The report notes that the assets in question were purchased after the ETF's launch in February 2012. In early March 2012, 10-year U.S. Treasury yields, which move inversely to prices, climbed sharply to highs around 2.40 percent, before dropping sharply to as low as around 1.40 percent over the next couple months. The moves suggest any credit assets Pimco purchased around that time may have also experienced sharp market-based changes in valuation. (Read More Would have done 'things differently': El-Erian)

News of the investigation comes as Pimco's Total Return Fund, the world's largest bond fund and managed by storied bond guru Bill Gross, had net outflows of $830 million in July, marking its 15th straight month of outflows, according to Morningstar.

Gross has faced additional scrutiny after media reports indicated the departure earlier this year of Mohamed El-Erian as co-CEO, was acrimonious.

Gross has also been outspoken about the way the financial system exacerbates income inequality, telling the Monitor in January:

"We're not just experiencing a new Gilded Age, but a Bitcoin Age," says Mr. Gross, referring to the digital currency. "Artificial money, corporate K Street, and Wall Street interests are producing one world for the rich and an entirely different world for the working class," says the founder and co-chief investment officer of PIMCO in Newport Beach, Calif.

"It can't go on like this, either from the standpoint of the health of the capitalist system itself or the health of individuals and the family," he adds.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to SEC probes whether PIMCO ETF inflated bonds' value
Read this article in
QR Code to Subscription page
Start your subscription today