Newport Beach-based Pacific Investment Management Co. has raised $745 million through three new mutual funds investing in municipal bonds.
The new closed-end funds,PIMCO California Municipal Income, PIMCO New York Municipal Income and PIMCO Municipal Income,provide income free from federal taxes. The first two also are free from state taxes for shareholders in their respective states.
The funds, which closed in late June, were offered to investors at $15 a share. The total raised by PIMCO includes an over allotment of $117 million.
“With so many disappointments in the stock market over the past year, people are looking for new investment opportunities with less volatility than equities,” said Mark McCray, an executive vice president at PIMCO and portfolio manager of the company’s municipal bond funds.
Municipal bonds normally offer lower interest rates than corporate bonds, but are exempt from federal tax and, in many cases, even state taxes. They are popular among wealthy investors looking for tax-free returns.
A typical municipal bond fund could give between 5.5% to 6% annualized tax-free yield, which for an investor in a high tax bracket is equivalent to almost a 10% return before taxes.
The funds marked the first time PIMCO has used the closed-end route to market its municipal products.
The bond funds were targeted mainly toward retail investors, according to the company.
Unlike open-end funds, which continually take in new money,and face possible net redemptions,closed-end funds collect money from investors through an initial public offering and use that money to invest in securities. Investors buy or sell shares in the open market, as they do shares of stock.
Since closed-end funds don’t face redemption possibilities, fund managers can take a long-term investment approach to improve their yield. Open-end funds are more focused on meeting quarterly performance targets.
PIMCO has six other municipal bond funds,all of which are open-ended.
In all, PIMCO has $3 billion in the municipal bond market. Most of PIMCO’s existing municipal bond funds have given above-market returns.
The firm’s New York Municipal Fund generated a one-year return of 14.18% and was rated best out of 102 similar funds since-inception by Lipper Analytics, a mutual fund ranking service. The California Intermediate Municipal Fund, which returned 9.06% in one year, was ranked by Lipper as best out of 27 peers since inception.
PIMCO is the largest bond manager in the U.S. with more $220 billion under management. It manages a total of 43 funds.
With the stock market in the doldrums, PIMCO’s assets under management have grown by almost 10% to $220 billion in the past 12 months. n
