Pimco Mortgage Fund: No Wonder It’s Slow Going

Yesterday we wrote that Pacific Investment Management Company, or Pimco, has raised $224.2 million for its secondary distressed mortgage fund. The target is $3 billion. It launched fundraising about 7 months ago, which means that the effort isn’t exactly moving at a breakneck pace. But then again, I thought, who’s is these days?

Well, today I obtained year-end results for the first distressed mortgage fund, and it gives me a pretty good idea as to why the fundraising is so slow. The fund, called PIMCO Distressed Mortgage Fund I LP, had a total of $2.8 billion in commitments.

Since it’s inception on Oct. 31, 2007, the fund has earned a -34.05 return after fees. It was down 25% in the fourth quarter alone. The firm’s explanation for the loss:

Although the market expected continued weakness in housing, the weakness of the general economy, underscored by substantial increases in the unemployment rate, was not as widely anticipated. This led to significantly wider risk premiums in non-Agency MBS of 4-6% over the quarter. Investor uncertainty has been increased further due to prospective legislation, including bankruptcy reform and aggressive streamlined loan modifications. The policies are particularly concerning because they include principal forgiveness.

Said our source: “They must be so embarrassed about what they have done that they took no public questions on their last investor conference call.”

Here are a few key data points from the docs:

Tough to market a second fund when your first fund’s results are that ugly…