Graham Hill
February 25, 2016
Content provider, sales/marketing/IR and branding consultant

Why Your Performance Doesn't Really Matter - a recent example

Pimco: The Latest Example of "Why Your Performance Really Doesn't Matter"

The February Issue of our Newsletter Taking Investors' Temperature examines why Pimco's Total Return Fund has suffered outflows despite extremely strong investment performance (attached below).

We believe Pimco's experience is just the latest real-world example confirming our bedrock belief, backed by our market research, that investors' trust, not manager performance, is the primary driver of net asset flows (please see my earlier post with our white paper or visit our website for more).

Chestnut Advisory Group works exclusively with asset managers to maximize their return on their sales and marketing efforts, enabling them to raise assets more quickly and retain them longer.

Click here to learn more about how we grow our clients' edge with investors:
http://hvst.co/1R8Npo9 
Taking Investors’ Temperature
Market Insights For Asset Managers
Chestnut Advisory Group
•
www.chestnutadvisory.com
•
203
-
307
-
2260
•
www.chestnutadvisory.com
Pimco
Strongly Outperforms Peers, Suffers Capital
Outflows Anyway. Another Example of Why Your
Performance Doesn’t Really Matter.
Pimco’s Total Return Fund has suffered continuous outflows since the
sudden departure of Bill Gross in September 2014
despite strong
performance
.
Previously, Pimco overall had strong net capital flows at the
firm despite historically poor performance at its flagship fund
(as we
discussed in our January 2015
Investors’ Temperature
)
.
Pimco’s experience during both t
hese
periods illustrates
Chestnut’s
bedrock belief, backed by our market
research
:
investor trust, not
manager performance, is the primary driver of net asset flows.
The
good news is that asset managers have strong control over building and
maintaining that t
rust. The bad news is that when that trust is lost,
investors punish the now
-
distrusted asset manager severely.
Article begins
on page 2
Upcoming
Appearances
Alpha Hedge East
Annual Conference
Feb 29
-
Mar 1, 2016
Palm Beach Gardens, FL
Chestnut CEO Amanda
Te
pper is moderating a
panel titled
“
Capital Raising
in a Tough Environment
”
FEBRUARY 2016
Chestnut Advisory Group is a consulting firm working exclusively with asset managers to maximize
the return
on their sales and marketing efforts, enabling them to raise assets more quickly and retain them longer.
2
Taking Investors’ Temperature
–
Market Insights for Asset
Manager
s
February 2016
Chestnut Advisory Group
•
www.chestnutadvisory.com
•
203
-
307
-
2260
•
www.chestnutadvisory.com
P
imco
Has
Large Outflows Despite
O
utperformance. It Appears
Investor
Trust
Has
Been Lost
Pimco’s Total Return Fun
d has suffered
continu
ous
outflows since the sudden departure of
PM Bill Gross in September 2014
despite strong
performance in 2015 and the beginning of 2016.
According to Todd Rosenbluth, head of exchange
-
traded fund and mutual fund research at S&P
Cap
ital IQ
,
the Pimco Total Return Fund was up
0.72% in 2015 versus a decline of 0.81% for the
Lipper Core Plus Bond peers and the broader
taxable bond universe that fell 1.87% in 2015. In
January 2016, the
Total Return
fund
gained
1.02%
versus 0.40% for the
peers and negative 0.03% for
the broader
bond
universe
.
Despite that strong investment performance,
the
fund suffered another $1.1B in outflows in January
2016
.
The Total Return fund hit a peak AU
M of
$293 billion in April 2013, and
now
sits
below $90
billion at the end of January 2016.
The reasons for these outflows are likely wide and
varied.
Some
are
probably
associated with
a
secular shift away from
actively
-
managed
bond
funds
to passive, as well as a general rotation out
of fixed income in a ris
ing rate environment.
Nonetheless, we believe the loss of close to 70% of
Total Return’s
assets in less than three years
represents
some loss of trust with investors.
We
will not speculate about the drivers of the loss of
trust in this particular case; o
ur primary goal is
simply to
use this example to illustrate how
valuable investor trust is to any asset manager’s
success, and why asset managers should make
every possible effort to grow and maintain this
trust.
Pimco Was
Ranked the #1 Most Trusted
Asset
Manager
Just Two Years Ago
Chestnut conduc
ted a
investor
survey
in
the Spring
of
2014
,
after the
resignation of
PIMCO’s
co
-
CIO
and CEO Mohamed
El
-
Erian
in January of that year
but before G
ross’ exit
. At that time,
US
institutional investors named Pimco
as the #1
most
-
trusted asset manager. This was an unaided
-
recall question where respondents could name any
firm they thought of, so this ranking is truly
heartfelt.
We asked investors why
they trusted Pimco so
much
.
It was clear by their responses that t
hese
3
Taking Investors’ Temperature
–
Market Insights for Asset
Manager
s
February 2016
Chestnut Advisory Group
•
www.chestnutadvisory.com
•
203
-
307
-
2260
•
www.chestnutadvisory.com
investors had ongoing conversations with PIMCO
post
-
El
-
Erian’s departure, and felt they truly
understood what was happening at the firm. As
one investor put it, “Despite their turnover at the
top, I would choose PIMCO... because of the depth
of their
professional organization. It doesn't
matter that Mohamed El
-
Erian left because they
have a deep bench.”
Loss of Trust Can Lead to Significant
Outflows
Chestnut’s proprietary research has quantified th
e
low correlation between
investment performance
and
asset flows.
Our research has shown that
t
rust
-
losing asset managers lose seven times
more capital than their worst
-
performing
peers.
We also found that
“trusted” asset
managers raise 4 times more assets than the best
performing asset managers
.
Source:
Chestnut Advisory Group
. Average quarterly net asset flows
of the bottom quintile investment performers and of the bottom
quintile net asset gatherers, over the period 2006
-
2013.
The chart above
illustrates our research findings
that during the investme
nt period of 2006
-
2013
the bottom quintile of funds ranked by net flows
experienced over 7 times more net outflows than
the bottom quintile of
investment performers.
This capital outflow occurred
despite the fact that
the firms
with
the worst outflows act
ually
outperformed
the worst performers b
y 81bps
annually on average.
4
Taking Investors’ Temperature
–
Market Insights for Asset
Manager
s
February 2016
Chestnut Advisory Group
•
www.chestnutadvisory.com
•
203
-
307
-
2260
•
www.chestnutadvisory.com
Pimco, as Most Trusted Manager, Had a
Lot of Trust to Lose
Pimco built its strong brand and high investor
trust over several decades of outstanding investor
education efforts. We
wrote about Pimco’s
industry
-
leading IR efforts in our January 2015
issue of this ve
ry newsletter. The only downsiz
e of
achieving such high levels of trust is the
punishment investors will dole out if and when
they start to lose that trust.
Our
research
demonstrates
that performance
alone does
drive capital
inflows or
outflows, but a
“loss of trust” is the biggest contributor
of net
capital outflows
. We believe this
may reflect
what
has happened at Pimco
over the last 18 months.
(See our white paper,
Your Performance Doesn’t
Really Matter,
for details.)
The commentary, analysis, and opinions in this publication represent the current views of Chestnut Advisory Group LLC, and ar
e subject to change at any time
without notice. T
he information provided in this publication is obtained from sources Chestnut believes to be reliable, although Chestnut has
not
independently verified or otherwise investigated all such information. Chestnut does not guarantee the accuracy or completene
ss
of any such information.
5
Taking Investors’ Temperature
–
Market Insights for Asset
Manager
s
February 2016
Chestnut Advisory Group
•
www.chestnutadvisory.com
•
203
-
307
-
2260
•
www.chestnutadvisory.com
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