Key to economic recovery may be in California
LOS ANGELES -- The credit crunch rolled from the East Coast across America like a tidal wave. But the U.S. is about to be whipsawed by a riptide rolling back from Southern California.
Best known for its celebrities and beaches, the region also is an enclave of the world's largest and most influential bond fund managers. And it will be these bond fund managers and their decisions of how to use their massive pools of cash to buy that will determine in large part when the credit crisis ends and the bond market stabilizes.
These firms are expected to be key players in the government's efforts to auction off many of the mortgage-related assets that have gummed up credit markets, necessary to get money flowing to companies, home buyers and entrepreneurs.
Southern California bond firms "are going to be enormously influential in both the methodology of tomorrow for bonds and in the actual construction of the markets," says Cynthia Steer of investment consulting firm Rogers Casey. "There's no question their influence is giant and deep-seated."
The size and influence of Southern California's bond investors and their importance in helping mend battered U.S. financial markets is evident from the fact it is home to:
•The largest buyers of bonds for institutions. Two of the three largest institutional bond investment managers are in Southern California, namely Pimco in Newport Beach and Western Asset in Pasadena, according to Institutional Investor. Pimco is the U.S. bond operation of Allianz Global, and Western Asset is the bond operation of Legg Mason. The two combined run more than $750 billion for large U.S. institutions, such as pension plans and endowments. The other of the Big 3 is New York's BlackRock.
•The largest buyers of bonds for individuals. That includes two of the three largest bond mutual funds: Pimco's Total Return is No. 1 followed by No. 3 Los Angeles-based American Funds' Bond Fund of America, says Morningstar. Vanguard's Total Bond Market Index is No. 2.
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