Orange County Business Journal

WSJ: Pimco Lost $3.4B Investing in Lehman Debt

Michael Lyster Tuesday, June 7, 2011

Newport Beach-based Pacific Investment Management Co. lost more than $3.4 billion investing in Lehman Brothers Holdings Inc. debt before the investment bank failed in 2008, according to a story in Tuesday’s Wall Street Journal.

Pimco, which manages $1.3 trillion in investments and runs the industry’s largest mutual fund, bet that Lehman would avoid failure in the brewing financial crisis.

Bill Gross, Pimco’s cofounder and co-chief investment officer, said in a July 2008 TV appearance that there was “close to 100% probability” that Lehman would survive, according to the article.

Lehman filed for bankruptcy in 2008, becoming a symbol of the financial crisis.

The investment bank’s bankruptcy proceedings are ongoing and have been felt in Orange County, where Irvine-based developer SunCal Cos. is fighting to free up several former projects once backed by Lehman.

News about Pimco’s investment in Lehman’s debt comes from an analysis of bankruptcy documents by the Wall Street Journal.

For Pimco, the news about its Lehman losses is largely a matter for the history books.

Pimco long ago wrote off its investments in Lehman debt, a spokesman told the Wall Street Journal.

Nor did the investments overly impact Pimco’s returns in 2008, which were among the industry’s best, the spokesman said.

The company’s Pimco Total Return Fund, the industry’s largest mutual fund, posted a 4.3% return in 2008 with bets that government bond prices would rise, according to the story.

Pimco is best known as a bond fund manager and has been stepping up a diversification into stocks and other types of investments in recent years.

The company manages investments for pension funds, insurers, corporations and others.