PIMCO Expands Redemption Fees

April 19, 2004 (PLANSPONSOR.com) - Another scandal-embroiled fund family has decided to impose broad-based redemption fees on market timers.

Pacific Investment Management Co. said in an SEC filing on Friday that it will impose a 2% redemption fee on short-term holdings of its funds in an effort to discourage trading abuses, according to Reuters.

The redemption fee will take effect June 15 on all of PIMCO’s funds except for money market funds, according to the filing.   The fees will be imposed if shares are bought and sold within specific periods – 7, 30, or 60 days – and the company will retain the right to refuse orders, PIMCO said, according to the report.

Redemption Status

The SEC currently has a proposal out for public comment on the mandatory imposition of a redemption fee on quick, market-timing trades in mutual funds – activity at the heart of the current mutual fund trading scandal (see  SEC Lays down Mutual Fund Proposals ).   If enacted, the SEC proposal would require that funds charge a 2% fee on shares sold within five days of purchase (see  SEC Goes “Public” with Redemption Proposal ).   In recent weeks other fund families tarred by the scandal have announced decisions to expand their current redemption fee policies, including Putnam (see  Hard-Hit Putnam Adds Redemption Fee ), Franklin Resources (see  Franklin Slaps on Redemption Fees ), and MFS (see  MFS Unveils “New Standards” ).  

Other Matters

PIMCO said that Jeffrey Ludwig is no longer the co-manager of seven of its funds, but Reuters said he is still employed at the firm as a portfolio manager, citing company spokesman James Clarke.

Kenneth Corba, the portfolio manager at Pacific Investment Management Co.’s (PIMCO) $845 million PEA Growth Fund and the $95 million PIMCO PEA Growth & Income Fund resigned last week – a “personal decision” on the part of Corba, a PIMCO spokesman told the Wall Street Journal.   In addition to his portfolio manager duties, Corba also acted as chief investment officer for PEA Capital LLC, the unit responsible for a number of the PIMCO’s stock funds.   Corba had been with PIMCO since 1995 (see  PIMCO Stock Fund Manager Corba Steps Down ).

Corba’s resignation follows civil charges filed in February by New Jersey regulators that PEA Capital, formerly known as PIMCO Equity Advisors, allowed improper trading arrangements to be conducted in its funds (see  PIMCO Hit with Garden State Trading Suit ).   In the Garden State’s complaint, it is alleged that PEA had policies to police and stop market timing, but that PEA Capital funds were instructed to ignore the questionable trading activities of Canary Capital Partners LLC – the hedge fund at the heart of the probe by New York Attorney General Eliot Spitzer.

Also in Friday’s filing, PIMCO raised the amount of assets many of its funds can hold in non-US-denominated securities to 30% from previous authorizations of 20% or 25%.