The Pacific Investment Management Co. (Pimco) has warned the U.S. Treasury Department about the fallout to investors from the strict sanctions that are pushing Russia toward default.

Executives at the asset management giant told the U.S. Treasury that U.S. pension funds will face losses if fund managers are forced to write down their Russian holdings, according to people familiar with the matter. They also made the point that a Russian default would allow President Vladimir Putin to keep foreign currency reserves, which would have otherwise been paid to creditors—giving him more money for war efforts—said the people, who asked not to be identified because the matter is private.
Pimco held the equivalent of about US$1.8 billion of Russian sovereign bonds, as well as exposure through credit-default swaps in its largest fund, the $124 billion Income Fund, according to its first quarter holdings report released last month. Pimco managed $2.2 trillion overall at year-end.

“Pimco—given its fiduciary duty to its clients—has engaged with the U.S. Treasury to express some of those key consequences of Russia defaulting,” a spokesman for Newport Beach, California-based Pimco said in a statement.
Russia has argued it’s fulfilled all obligations, even as its bond payments are stuck on their path to foreign investors by tighter U.S. and European Union sanctions. That’s left fund managers who own the country’s foreign debt in an awkward position—making the case for payments that ultimately flow to their clients, while running the risk of appearing to tell governments to relax their response to a conflict that’s already cost thousands of lives.

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