After months of clamoring for a divorce from its equity fund affiliates, Bill Gross finally got his wish.
The PIMCO brand name of mutual funds will officially cut ties with its tainted affiliates early next year, as parent company Allianz Dresdner Asset Management has agreed to hand over the rights to the PIMCO label to its bond fund business.
At a press briefing in London last week, the German insurance giant announced that it has changed its name to Allianz Global Investors to be followed in the first quarter of 2005 by the removal of the PIMCO brand name from 27 Allianz-owned funds not under Gross' supervision. Gross, who co-founded PIMCO 30 years ago, in February demanded a divorce from other funds that had been using the PIMCO name since Allianz bought the fund company in 2000.
Mistakes Were Made
Gross' dissatisfaction and ultimately the company's re-branding efforts stemmed from charges brought by New Jersey regulators alleging that equity fund manager PEA Capital of New York and Connecticut fund marketer PA Distributors allowed preferred clients to market time their funds in exchange for sticky assets. As a result, the companies agreed to an $18 million settlement and were forced to make sweeping changes to their organizational structure including the separation of the sales arm from the money management group.
The suit initially named the PIMCO bond unit as a co-defendant in the case, but the charges were later dropped due to a lack of evidence. Despite being cleared of any involvement in the market-timing scheme, the PIMCO brand name has been dragged through the mud, and Gross took it personally. Joachim Faber, CEO of Munich-based Allianz, conceded that, in retrospect, using the PIMCO name as a marketing tool had been "a mistake" and that he should have pulled the name off those funds sooner.
Faber's admission that it was a mistake to bundle those funds under the PIMCO label appears to be a way to assuage Gross by publicly recognizing that this in some way put his firm at risk. Gross said he was happy with the decision. "Brand confusion doesn't help investors, employees or anyone else," he told the Los Angeles Times. "We're glad to have the PIMCO name associated only with the products we lead."
Allianz had acquired PIMCO and several other small asset managers including PEA, RCM, Nicholas-Applegate, Oppenheimer Capital and NFJ Investment Group in an effort to expand its reach in the U.S. retail fund market. While each company was able to maintain its own identity, the PIMCO name was attached to each fund offering to leverage its brand and capitalize on the star power of Bill Gross and PIMCO's reputation. With $400 billion in assets, PIMCO controls roughly 80% of Allianz's total assets in the U.S.
"The name in mutual funds is incredibly important," said Max Rottersman, CEO and founder of FundForensics, a research firm that analyzes fund data for institutional clients. "Anybody that has a name that is associated with success, an amazing amount of people will follow."
"From a pure branding perspective, it was a pretty darn good idea," said Eric Jacobson, senior research analyst at Morningstar of Chicago, noting that the other Allianz subsidiaries were much smaller and had only a few million dollars in assets. "[But] by virtue of the fact they were using the PIMCO name, they were having a direct effect on the fortunes of PIMCO, without any control."
Figuring out a branding strategy following an acquisition can be rather tricky. If a company subsumes smaller companies through an acquisition, it runs the risk of alienating the portfolio managers, who represent the intellectual capital of a fund. Some portfolio managers may not want to work for a large fund complex, and there are always many egos to juggle. In the case of Allianz, the company was trying to "split the baby" by allowing them to remain independent but still keep part of their name, Jacobson said.
Sticking to What You're Good at
Confusing branding strategies can be seen in other industries, as well. For example, luxury automaker BMW recently recalled its three-wheeled kick scooters for safety reasons after an unlikely product launch. The move illustrates the risk involved when companies try to do things that are outside the realm of their core competency. The same goes for mutual funds. "When you take a prestigious name and put it on something that's outside your core business, it's dangerous," said Roy Weitz, investor advocate and publisher of FundAlarm.
Ross Frankenfield, an analyst with Financial Research Corp. in Boston, echoed that sentiment, adding, "While [Allianz] had success growing assets on the equity side, the company really can't afford to have that negative publicity associated with its core business."
A spokesperson for PIMCO noted, "There has been great success in numerous equity products that have been marketed under the PIMCO brand, both in terms of performance and flows." For one, the $3 billion PIMCO PEA Value Fund, managed by John Schneider since its inception in 2000, boasts a five-year annualized return of 12%, according to Morningstar.
Still, other funds have not really taken off, something Weitz attributes to the hybrid nature of their name. In other words, they're PIMCO, but not really. In addition, PIMCO, albeit a name associated with success, remains a bond name and carries little weight when it comes to investing in stocks.
Going forward, each Allianz fund unit will operate under its own name but will also carry the tagline "A Company of Allianz Global Investors." Ultimately, the decision to change its branding strategy makes sense. The fact is that nobody minds using each other's names when there is smooth sailing, but when New Jersey regulators come sniffing around for impropriety, the last thing a bond trader in California wants is to be lumped in with a distant affiliate. Outside of the PIMCO name, there are very little similarities among the Allianz-owned fund companies. So from now on, PIMCO will mean just bonds.