In the wake of Bill Gross's abrupt departure from Pimco, fund competitor BlackRock's promotion of its scale, distribution and product performance has helped it capture more business.
"When Gross first made his announcement, right off the bat, everyone was wondering who is going to benefit, because that money has got to go somewhere," says Dan Sondhelm, partner at SunStar Strategic.
"And the money has really flowed, creating a huge opportunity in the market. Bond money is in motion again. When you ask who was well positioned for this right at that time, even before anyone could react, BlackRock was."
According to Pimco, investors pulled a record $27.5 billion from its Total Return Fund in October, topping the $23.5 billion that exited the fund in September - largely in the days immediately following Gross's move to Janus Capital.
In the same period, BlackRock inflows spiked, according to Lipper: From August, BlackRock's bond mutual had net inflows of $173 million; by September it was over $450 million, and last month it topped $2.9 billion. Roughly $1 billion of October's total flowed to the BlackRock Total Return fund, $1 billion went to its Low Duration Bond, and the rest scattered.
BlackRock and Pimco did not return requests for comment. However, observers say its recent growth is due to an apparent coordinated effort to capitalize on Pimco's perceived weakness - canvassing its professional networks of advisors and institutions, combining efforts of wholesalers and national account teams, cutting costs of its fixed income products, timely placement of thought leadership material, and even having BlackRock CEO Laurence Fink publicly speak about fixed income investments and the company's "team culture."
"It really is a total organizational effort," notes Larry Petrone, head of research at asset manager consulting firm kasina.
Petrone says BlackRock sales and marketing teams have been integral to its strategy of persuading advisors wary of Pimco to move assets to their funds. "You want to go out to the advisors through channels, and their own wholesalers have been most effective, able to craft a message they want," he says. "They are going to try to position themselves against what's happened in Pimco, so the message is about stability."
Networking is critical, Petrone adds, and it carries through various sales functions.
"They are person-to-person touch points with advisors, and they know who has the most money in those organizations. Wholesalers are the ones out in front of those advisors, and working with marketing they can provide materials that demonstrate the efficacy of their investment process."
Extending that personal outreach, he notes, are national account teams that interact with research groups, whose opinions wield influence over investors and fund managers.
"On a platform there may be 1,200 funds, but there are recommended lists within models," Petrone says. "I'm a competitor trying to push my fund to either a model or a research recommended list; I want to be talking to these people."
And there is also the sub-advisory sales effort too, Petrone says - at the end of October, BlackRock picked up Pimco's management of a $6.16 billion strategy at a unit of Prudential Financial.
"They are better able to seize on opportunities because they have a larger number of people at their disposal, and also a lot of consultant relationships on institutional side," says Barry Fennell, senior research analyst at Lipper. "They have a great relationship with those consultants, who know what searches are going on, and who's considering making a change."
BlackRock also followed other investment managers by providing investor incentives meant to capitalize on Pimco's disarray. In October, BlackRock cut fees on three bond funds, including its $4 billion Total Return Fund.
"They are likely seeing a significant increase in inquiries from existing clients about the firm's fixed-income capabilities," says Mike Alfred, co-founder and CEO of San Diego, Ca.-based BrightScope, a financial information provider. "It makes sense to proactively lower fees to accelerate the process and pull the economies of scale forward."
Crafting a dialogue and providing a consistent message has also been an important spoke in BlackRock's strategy, says SunStar's Sondhelm, pointing to a white paper on fixed income and ETFs the firm recently released that was well received, topping their website with messages about bond investing, and having key officials, including BlackRock's Fink, speak publicly about the firm and fixed income investments.
"Some of the messages I've seen have been very smart," Sondhelm says. "This is an effort at all levels of BlackRock to compete, at a scale that's tough to match."
Fennell agrees that a visibility push aided BlackRock's strategy to capture investors.
"They've become well known in the last seven to 10 years," he says. "They've reached the investor base, running print ads and television ads for their ETF products. They just got their brand name out there and really established it, and that's helped people feel comfortable moving to them in this situation."
Petrone says seasoned investors will be closely watching Pimco's performance, and expects its efforts to staunch outflows will take effect by the beginning of next year.
"Given all the things Pimco's been doing, that opportunity [to take business from them] will start closing," Petrone says. "Pimco is highly affected by what happens with equity flows, but you can't blame that on management. Still, clearly a lot of the negatives are because of events within the organization."