The Securities and Exchange Commission is investigating whether bond giant PIMCO artificially boosted the returns of the $3.6 billion PIMCO Total Return exchange-traded fund, according to The Wall Street Journal.
Citing people familiar with the matter, the Journal report (subscription required), says that a probe into pricing issues at PIMCO has been under way for some months, and that PIMCO’s Bill Gross, who manages the fund, has been interviewed by SEC investigators.
The report says the SEC is looking into the way PIMCO’s flagship ETF purchased and valued certain bonds — specifically, whether the fund bought investments at discounted prices but relied on higher valuations for the investments when the fund calculated the value of its holdings shortly thereafter. That would look as though the ETF had scored quick gains, the report notes, when it was actually only taking advantage of variations in the way some investments are valued in the bond market.
The report also says that a possible focus of the SEC inquiry is whether investors were given inaccurate information about the fund's performance. It is a breach of securities law to provide investors with misleading information about values or performance, even if the wrong information was supplied unintentionally.
PIMCO "has been cooperating with the SEC in this nonpublic matter, and we take our regulatory obligations and responsibilities to our clients very seriously. We believe our pricing procedures are entirely appropriate and in keeping with industry best practices," a spokesman for the firm told the Journal.
The ETF was launched Feb. 29, 2012 with $103 million as a companion to Gross's much-larger PIMCO Total Return fund, and was designed to follow a similar strategy. The Journal notes that the PIMCO Total Return ETF returned 8.7% between March and August of 2012, its first six months in existence, compared with 5.2% for the PIMCO Total Return fund and 2.9% for the Barclays Capital U.S. Aggregate bond index. The fund gathered more than $2.4 billion in its first six months.
That kind of performance raised questions among some of PIMCO's clients about the discrepancy in results between the ETF and the Total Return fund, according to the article, citing a person close to the firm.
