INVESTMENT FUNDS REPORTER
The world's most famous bond fund manager is planning an aggressive expansion into Canada as early as this fall, challenging existing players for a slice of this country's mutual fund market.
In recent interviews, Bill Gross has been talking up Canada as a better place to find good bond returns than in the United States. Now his company, U.S. bond giant Pimco, intends to file with regulators for at least five mutual funds that would go on sale in time for the registered retirement savings plan season, sources say.
Pacific Investment Management Co. LLC, which oversees more than $1-trillion (U.S.) in assets worldwide, has had an office in Canada since 2004, but has catered mainly to pension plans. The new offerings would be aimed at retail investors and are likely to charge lower fees than their Canadian peers, because of Pimco's vast scale. Stuart Graham, president of Pimco Canada, was mum on the company's plans to make inroads into the Canadian mutual fund sector. "I am not denying it, but I am not commenting on it," he said in an interview.
Market conditions could yet derail or delay Pimco's intentions, but Bay Street sources say the company's goal is to file in the fall. Pimco would be following in the footsteps of other big U.S. fund companies that have come to Canada - Fidelity, Capital Research, Franklin Templeton, Invesco, and Brandes.
Pimco's interest in Canada comes as investors display a growing appetite for bonds.
Many people are looking for reliable yields and remain nervous about stock markets after the 2008 market collapse.
Bond funds were the best-selling mutual fund category in August with just under $1.1-billion (Canadian) in net sales, according to the Investment Funds Institute of Canada.
Some Canadian investors have had exposure to Pimco through two global bond funds that it runs as an external manager or "sub-adviser" for Bank of Montreal, and in fund-of-funds portfolios sold by Russell Investments Canada Ltd.
BMO spokeswoman Martha McInnis would not say whether the bank's relationship with Pimco would continue if it begins to deal directly with Canadian investors either through financial advisers or discount brokers.
"We have been made aware of [Pimco's] intentions," she said in an e-mail.
"The arrival of Pimco in the Canadian fund industry would certainly create a stir," said Peter Loach, a former fund analyst and now executive at Sprott Inc.
"It's the goliath of global bond investing."
Pimco will compete against the bond funds of major domestic players, such as Royal Bank of Canada, which owns Phillips Hager & North Investment Management Ltd., and Toronto-Dominion Bank.
Dan Hallett, director of asset management for HighView Financial Group, said Mr. Gross's high profile on television, in print and through his online commentary may help Pimco gain traction in the Canadian market.
"At least they won't be a new company and a new story trying to build a brand," he said.
Pimco's Canadian strategy appears similar to its pattern in Britain where it had a toehold in the institutional market.
Earlier this month, it began to offer a range of bond funds to British retail investors.
While Pimco made its reputation by consistently being among the top performers among U.S. bond funds, it has started to broaden its expertise beyond bonds by poaching equity managers from U.S. rivals, and is now more able to offer a more diversified fund family.
In the United States, it has begun selling the Pathfinder Fund, a global equity offering run by managers Anne Gudefin and Charles Lahr, who were hired away from Franklin Resources Inc.
The two managers also ran Mutual Discovery Fund sold by Franklin Templeton Investments Inc. in Canada. It would make sense for Pimco to sell the Pathfinder Fund in Canada because "they [the managers] had a pretty good profile here," Mr. Hallett said.
Five largest U.S. mutual fund companies
J.P. Morgan Chase & Co.
Source: Investment Company
© 2007 The Globe and Mail. All rights reserved.
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