PIMCO surges
Strong Q1 flows and further market share gains
The transition between a longstanding king and his successor can be painful especially when it is the result of an internal power struggle. PIMCO was founded in 1971, but it was in the 10-15 years before his departure that Bill Gross’ legendary Total Return Fund added more than a quarter of a trillion dollars of client assets. But when that imploded many believed it would take the firm down with it. Gross was a media-hungry, sun-glass-wearing alpha male famous for his office outbursts. His successor Dan Ivascyn is the opposite. Since Ivascyn became CIO in 2014 and Manny Roman became CEO in 2016, PIMCO has steadily clawed its way back to the top of the mountain of active bond management.
But surely active bond managers are dead?
There is a barbell emerging in fixed income just like equities as Huw van Steenis articulated in his excellent piece in the FT last year The barbell tolls for fixed income investing. There has been a massive growth of fixed-income ETFs, private credit, and hedge funds in the fixed-income markets.
The data supports a shift of retail investors out of active bond mutual funds into ETFs. But the trend is not nearly as dramatic. The chart below illustrates data on the US market sourced from ICI. $1.4 trillion has flown out of US equity mutual funds in the last two and a half years and almost as much flowing into US equity ETFs. Inflows into bond ETFs have also been considerable at around $550bn but there has not been the same outflow out of active bond mutual funds. There were some outflows in 2023 but 2024 saw a healthy level of inflow into active bond mutual funds. A similar trend was seen in Europe with a switch out of active into passive in equities but strong inflows in active bond funds in 2024.
Q1 2025 saw a divergence again with $7bn of net inflows into active bond mutual funds well below the $23bn of net inflows into ETFs but these numbers don’t tell the whole story. ETF flows were predominantly passive in prior years but in the last quarter around half of those into bond ETFs were into active not passive bond ETFs. There has been an increase in the divergence in Q2 2025 with net outflows from bond mutual funds of $67bn and inflows of $27bn going into bond ETF funds. But this was heavily skewed by two weeks of massive outflows from active bond funds in early April. Things have stabilized since then.
A crucial reason for the relative health of active bond funds versus their equity brethren is their superior returns. Over the last decade, 64% of active US bond funds outperformed passive with an average annual outperformance of 30bps. This is owing to a multitude of reasons including the greater difficulty of index replication and bond index design which means that more heavily indebted companies and countries that are likely to be nearer default have greater weightings, which is the opposite of equity indexes, where more successful companies are a greater portion of the index.
PIMCO has historically been the largest active bond manager. Is it following the market or is it bucking the trend?
PIMCO – the flow monster
Following the huge outflows of 2013 and 2014, PIMCO gradually recovered in terms of net flows. But it was still lagging the industry through the 2017-2022 period with the emergence of Capital Group, traditionally an equities shop as the fastest growing active bond manager with great performance and significant hiring driving more than $100bn of inflows. Other strong winners in the space included JP Morgan, PGIM, Baird, and Vanguard. When rising interest rates and inflation resulted in one of the worst bond markets in recent history in 2022, PIMCO was hit with $80bn of net outflows. Despite industry outflows continuing (at a slower pace) in 2023, PIMCO managed to have $30bn of net inflows.
But momentum started to build the following year with more net inflows during the first quarter of 2024 than the prior twelve months. PIMCO’s global net inflows were almost $100bn in 2024 equivalent to half of all inflows into the whole US bond mutual fund industry. According to Morningstar in Europe PIMCO was also one of the big winners in terms of fund flows with JP Morgan and Nordea.
When Allianz reported results last week, it highlighted that the momentum had continued with around $30bn in net inflows in Q1 2025 on the backdrop of softer industry inflows. The company didn’t give specific guidance for the second quarter beyond saying momentum had continued. It wouldn’t be surprising to see some slowdown given the massive industry outflows in early April.
The engine of PIMCO’s growth has been its giant Income Fund (more on this later). The most in-demand competing US active bond funds were also Core and Income Funds from Dodge and Cox, Capital, and PGIM. These are all now running $50-100bn of assets under management (AUM) each according to Morningstar.
By contrast, the biggest net outflows have come from Franklin Templeton where a regulatory investigation and the departure of Western Asset Management (WAMCO) bond king Ken Leech resulted in net outflows of $150bn over the last year with AUM halving.
Blackrock is known less for its active investing today and more as an asset management supermarket. Looking at headline numbers at its $1.1 trillion active fixed income complex the inflow of $8bn in 2024 and outflow of $6bn in Q1 2025 look very weak. But the underlying picture is a little better. The fixed-income ETF business took in $112bn in 2024 and $34bn in Q1 2025. Although more than 75% of fixed-income industry ETF assets remain passive, there was a clear trend in the first quarter of this year that active fixed-income ETFs were half of all fixed-income ETF inflows. Blackrock also has a large but lower margin active multi-asset business for institutional clients, which took in $50bn last year and $5.9bn in Q1 2025.
How big are they?
PIMCO’s AUM is similar to how much Blackrock manages in active fixed-income and multi-asset mandates. The latter is not exactly comparable but Blackrock is also a trillion-dollar ETF business, and a small portion of that AUM are active ETFs. In addition, it has made a large acquisition recently in private credit. The broad point is that PIMCO and Blackrock are relatively comparable in the active fixed-income space in terms of how much client money they manage.
But more interesting is looking at revenues. PIMCO’s alternatives business is much smaller than Blackrock’s recent acquisitions but it is still a significant contributor so I have broken down revenues between more traditional long-only active asset management products and alternatives. Even then the chart below illustrates how much more money PIMCO generates from a similar amount of client assets.
There is a difference in client base. Blackrock’s active fixed income and multi-asset AUM are 28% and 15% retail with the vast majority of AUM being institutional. By contrast, PIMCO’s overall AUM is 40% wealth/retail and 60% institutional. But this alone doesn’t make up the difference. Just as important is the fact that PIMCO has more pricing power in the retail and institutional market than Blackrock when it comes to active fixed income.
Moreover, PIMCO has consistently generated operating margins of 40-45% in recent years, which is broadly in line with Blackrock as a whole. Given the huge scale and business model (process rather than star manager driven) of Blackrock’s index and ETF franchises, they are likely to have far superior profitability to Blackrock’s other businesses, in particular its active bond manager business. PIMCO’s operating margins are also far superior to the 25-30% that the median asset manager generates. With around $2.8bn of operating profits per annum, PIMCO contributes almost one-fifth of the profits of Allianz, which is one of the world’s largest insurers.
Why PIMCO is winning
When Dan Ivascyn replaced Bill Gross as CIO, he had built up a stellar track record following the Global Financial Crisis. At the time, the media crowned Jeff Gundlach of DoubleLine as the new Bond King, but Gundlach’s investment performance has been mixed for many years and so have flows at his firm. Ivascyn has consistently outperformed benchmarks and peers. Much of this was owing to a big bet on US non-agency mortgage bonds and the fund tends to run lower duration than Gross would.
Ivascyn’s Income Fund is now around $170bn of AUM, up from $38bn at the time of Gross’ departure ten years ago. The success of Dan Ivascyn’s PIMCO Income Fund has created a huge halo effect for PIMCO. The broader suite of PIMCO Income funds have $400bn of AUM and over $1.5bn of revenues.
PIMIX – PIMCO Income Instl Fund Stock Price | Morningstar
But PIMCO is more than just the Income Fund. The Total Return Bond Fund made famous by Bill Gross has seen mixed results in the last decade and its AUM has shrunk to $44bn. However, overall PIMCO’s track record has been stellar. Net of its fees (which tend to be above peers), 90% of its AUM is above benchmark over the last 5 years. Moreover, these outstanding 5-year return outperformance numbers for PIMCO have been relatively steady over the last few years. Over the last decade, 79% of PIMCO US bond funds outperformed passive with an average annual outperformance of 70bps per annum over this period.
Bill Gross was one of the first long-only bond managers to use futures contracts. Today PIMCO’s active managers are aggressively using ETFs when they want to reposition their portfolio, for instance during the tariff tantrum of this April.
PIMCO is growing rapidly in alternatives. This is 10% of PIMCO’s AUM, but around a quarter of revenues and the company is targeting this to increase in coming years. Half of these assets are in real estate, but it also has a strong and fast-growing portfolio of asset-backed lending funds, multi-asset private credit, and around $20bn in hedge funds. The PIMCO team believes that there is a lot of froth and risk in the private credit markets but where these credits are backed by assets, they are better bets.
PIMCO believes that its growth over the next 3 years will be driven by wealth management, international, and alternatives. The core US institutional market for public market bond investing is mature but PIMCO’s wealth management/retail business has been growing faster and is the engine of US inflows. PIMCO expects this to grow at double-digit percentage rates. PIMCO’s business from the Middle East and Asia Pacific is growing at a rapid pace with consistently large inflows. European flows are the most muted of all the regions but the flagship Income Fund has sold well in Europe in recent years. EMEA and APAC are together 43% of PIMCO’s AUM and Overall, PIMCO expects double-digit revenue growth from its international business in the next few years. PIMCO has also been looking at how to leverage its relationship with its parent Allianz further. The latter is usually heavily involved in seeding PIMCO’s new products.
PIMCO is back. They have a new bond king and are one of the few active long-only asset managers winning. PIMCO combines the best of the scale of a mutual fund giant with the aggression and fight of a hedge fund or private credit lender.