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Fund Times

Gross Lawsuit Doesn't Change Our PIMCO Ratings

Our view of PIMCO and its flagship Total Return are unchanged, but we'll be watching for any new information on PIMCO's fee practices.

Bill Gross filed a lawsuit against his former employer, PIMCO, on Thursday. The suit alleges that several top executives at PIMCO worked to push him out of the firm in an effort to boost their pay and to expand their firm into riskier asset classes. Gross is seeking at least $200 million in damages for earned compensation that he claims he was denied. 

The lawsuit does not currently affect our opinion of PIMCO's funds or how they're run. Our Stewardship Grade for PIMCO is a C, and  PIMCO Total Return (PTTRX) has a Morningstar Analyst Rating of Bronze. 

There is one element of potential interest to shareholders, however. The lawsuit references how much PIMCO charges in fees and how PIMCO discloses those charges to shareholders, with Bill Gross suggesting that PIMCO has been deliberately obfuscating the allocation of some fees in order to make it easier for the firm to raise them.

The way PIMCO discloses fund fees is an issue that Morningstar analysts have raised publicly many times in the past. You can read our take from 2011 here.

We'll be monitoring the lawsuit for any new material information on PIMCO's fee practices; but again, we see no reason to change our ratings on the firm or the funds at this point. 

Eric Jacobson has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.