So why didn’t it happen? One explanation, according to a regulatory filing last month, may be that Pacific Investment Management Co. held the fund’s clearance sale in-house. The firm sold about $18 billion of Total Return’s assets to other Pimco funds and accounts between October and March, helping it meet more than $100 billion of redemptions that followed Gross’s surprise exit.

Pimco, among the largest bond managers with about $1.6 trillion in assets, made use of a provision in the Investment Company Act of 1940 allowing funds within the same family to trade with one another under limited circumstances. Such cross trades are tightly regulated because they pose potential conflicts of interest, and can only be done if they’re beneficial to the buyer and seller. In this case, their use may also have limited the fallout in areas of the bond market where the fund traditionally held large chunks of debt, such as Treasury Inflation Protected Securities, or TIPS. […]