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UPDATE 1-Vanguard blocks 'hot money' into bond funds amid Pimco outflows
October 1, 2014 / 5:08 PM / 3 years ago

UPDATE 1-Vanguard blocks 'hot money' into bond funds amid Pimco outflows

(Adds comment from Vanguard global fixed income chief)

By Tim McLaughlin

BOSTON, Oct 1 (Reuters) - Vanguard Group’s global bond chief said Wednesday the company has tightened controls at some of its long-term bond funds to screen out “hot money” amid heavy cash outflows from rival Pacific Investment Management Co.

Such controls, such as asking investors how long they plan to invest their funds, aim to limit the flow of money moving quickly from one fund to another.

“We have a very robust process in place that screens out ‘hot money,'” said Greg Davis, who oversees more than $800 billion in bond assets at Vanguard. “We’ve always had tightened controls. We’ve tightened them up some more.”

Outflows from Pimco’s Total Return Bond Fund have accelerated after star bond manager Bill Gross left the company last week to take a job at Janus Capital Group Inc, a much smaller company.

It is estimated that billions of dollars have flowed out of Pimco, which had $1.97 trillion in assets as of June 30, since the news of Gross’ departure rattled global bond markets.

Davis said controls have been tightened, for example, at the $121 billion Vanguard Total Bond Market Fund because it is a prime substitute for the large Pimco fund formerly run by Gross.

Vanguard uses a qualifying transaction limit, which looks at an investor’s time horizon and the amount of money the investor wants to put into a long-term fund. Vanguard, the No. 1 U.S. mutual fund company, blocks so-called ‘hot money’ from flowing into bond funds to protect long-term investors from higher transaction costs associated with those inflows, Davis said.

He said investors with short-term time horizons are encouraged to park their money at an exchange-traded fund, for example.

Reporting By Tim McLaughlin; Editing by Richard Valdmanis and Dan Grebler

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