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Illinois Fund to Trim Its Holdings at Pimco

March 23, 2004|Josh Friedman | Times Staff Writer

An Illinois pension fund said Monday that it planned to withdraw $250 million from Pacific Investment Management Co. to show its concerns about improper-trading allegations against the big Newport Beach bond shop.

But Pimco will retain most of its business with the Illinois State Universities Retirement System, which has about $2.3 billion of its $12.5 billion in assets with Pimco.

"We feel we need to send a signal to Pimco because our trustees are concerned about these allegations in the media," said Jim Hacking, executive director of the pension fund. "This conveys the sense of unease the trustees have about the allegations."

Hacking characterized the decision to pull the $250 million, which was made by the fund's board Friday, as a "one-time reduction." The fund has invested with Pimco since the early 1980s, he noted, and trustees are hoping to meet with Pimco executives, including prominent Managing Director Bill Gross, to discuss the allegations.

Two Southern California companies, Western Asset Management in Pasadena and Metropolitan West Asset Management in Los Angeles, will receive large portions of the assets transferred from Pimco, Hacking said.

Pimco declined to comment on the Illinois action.

With about $370 billion under management, Pimco is one of the nation's largest bond fund managers.

In a civil fraud lawsuit last month, New Jersey accused Pimco of allowing a hedge fund to rapidly trade its mutual funds. Such in-and-out trading, called market timing, can harm shareholders by siphoning profits and driving up transaction costs, regulators say.

Pimco and Gross, a frequent guest on business television programs, have been lobbying institutional investors such as pension funds to remain faithful, calling the New Jersey charges "totally unwarranted" -- at least as they pertain to the firm's bond mutual fund operation in Southern California.

Gross has said Pimco's bond funds did not let the hedge fund trade beyond the prospectus limits and did not derive any benefit from the trading.

The firm's stock fund sibling, New York-based PEA Capital, and its mutual fund sales operation, Pimco Advisors Distributors in Stamford, Conn., also were named in New Jersey's complaint. They and Pimco have the same corporate parent, German insurer Allianz, though the California operation emphasizes its independence.

PEA Capital called the short-term trading "unique," saying only one trader was involved and only one stock fund was harmed. That fund will be reimbursed for the "dilution" to shareholders, it said, adding that advisory fees on the hedge fund's assets will be rebated to investors.

The Illinois pension fund has had talks with Pimco "at the staff level," Hacking said, but it hopes Gross will meet with the board at or before its next annual meeting June 17-18 in Chicago. That invitation was issued Friday, Hacking said, and the pension fund was awaiting an answer.

The $167-billion California Public Employees' Retirement System is among other pension funds reviewing ties to Pimco in the wake of New Jersey's suit and disclosures that the Securities and Exchange Commission also was investigating Pimco's trading. CalPERS' staff was expected to make a recommendation at the board's April 19 meeting, a spokeswoman said.

Pension funds in Hawaii, Colorado, Oklahoma and Indiana also have said they are reviewing Pimco, but none has announced a split from the firm.

The SEC has not taken action regarding Pimco. An agency spokesman declined to comment.

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