Friday, May 15, 2009

Pimco’s Gross Takes Over Four Funds Managed by Hudoff

Bill Gross, the co-chief investment officer of Pacific Investment Management Co., will take over four funds following the departure of Mark Hudoff, the firm’s top high-yield bond manager.

Gross will manage the Pimco High Yield Fund, Pimco Convertible Fund and the High Yield Portfolio of the Pimco Variable Insurance Trust, according to documents filed with the U.S. Securities and Exchange Commission today. He will also manage Pimco High Income, a closed-end fund that Hudoff had overseen. The funds have almost $9 billion in assets.

Hudoff will join Los Angeles-based Hotchkis & Wiley Capital Management in July. Pimco’s decision to replace him with Gross coincides with a rising demand for high-yield bonds. Junk-bond funds have attracted $9.6 billion from investors in the first four months of this year, compared with $1.3 billion for all of 2008, according to Chicago-based Morningstar Inc.

“Whatever happened, they have the star of the team pinch- hitting,” said A. Michael Lipper, the head of Lipper Advisory Services, a Summit, New Jersey-based firm that runs mutual and hedge funds.

Mark Porterfield, a Pimco spokesman, said in an e-mail that the Newport Beach, California-based firm plans to conduct a “full search to ensure the right candidate is selected to eventually lead the high-yield effort.” It is appropriate for Gross “to step in and fill a temporary gap,” Porterfield said.

“My guess is that this was a surprise and it left them in a situation where they hadn’t identified a successor to Mark,” said Eric Jacobson, a senior analyst at Morningstar.

High-Yield History

Gross, 65, already manages Pimco Total Return, the world’s largest bond fund at $150 billion in assets. Before co-founding Pimco in 1971, Gross was a credit analyst for Pacific Mutual Life Insurance Co. and he’s been buying high-yield bonds since the inception of the market in the late 1980s, Porterfield said.

Hudoff will join Hotchkis & Wiley, which manages about $11 billion in assets, said Tucker Hewes, an outside spokesman for the firm. Hotchkis & Wiley hired former Pimco portfolio manager Raymond G. Kennedy in February to start its high-yield business. Hudoff replaced Kennedy as the manager of Pimco High Yield in April 2007.

The changes in management at Pimco are effective immediately, according to the filings. Hudoff couldn’t be reached by telephone calls to his home.

Daniel Ivascyn will become the sole manager of the $312.6 million Pimco Income Fund, which he managed jointly with Hudoff.

Pimco Total Return had about 2 percent of net assets invested in high-yield debt through April, up from 1 percent in March. High-yield, or junk, bonds are those rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

13-Year Career

Hudoff, who holds a master’s degree in business administration from the University of Chicago, joined Pimco in 1996 as a credit analyst for the firm’s high-yield team, according to a biography that was posted on the firm’s Web site.

After helping to build and manage Pimco’s European credit business, Hudoff founded and developed the firm’s global high- yield practice while also managing funds, the site said. He began managing the Pimco convertible fund in 2003 and, about four years later, took Kennedy’s place at the high-yield fund.

The convertible fund had assets of $1 billion as of March 31, while the high-yield fund had $6.4 billion, according to Pimco’s Web site. The high-yield portfolio within the insurance trust had assets of about $322.6 million on Dec. 31.

The high-yield fund returned 11 percent this year after tumbling 24 percent in 2008, according to data compiled by Bloomberg. The $922 million Pimco High Income Fund, has gained 49 percent this year after dropping 46 percent in 2008.

The average high-yield bond has gained 21 percent this year after losing a record 26 percent in 2008, according to Merrill Lynch & Co.’s U.S. High Yield Master II Index.