Pimco's Gross sees low returns, no bubbles in assets: letter

NEW YORK (Reuters) - Bill Gross, manager of the world's largest bond fund at Pimco, said Wednesday the likelihood of 2 percent future cash returns indicated that, while assets are not in a bubble, they would deliver lower returns in future years.

Gross, whose Pimco Total Return Fund has $232 billion in assets, said the future "neutral" fed funds rate would be critical for finding value in all assets, and that his firm believed it was about 2 percent.

"At PIMCO, we believe that this focus on the future 'neutral' policy rate is the critical key to unlocking value in all asset markets," Gross said in his monthly letter to investors titled, "Achoo!"

Gross, co-founder and chief investment officer at Pimco, said that if the neutral rate is 2 percent, asset markets are "not bubbly, just low returning." Bonds would be "attractively priced" rather than "artificially priced" if the rate was at 2 percent, he said.

Financial bubbles are created when investors do not recognize when rising asset prices get detached from underlying fundamentals.

Gross said his firm differed from current Federal Reserve "participants" who believe the neutral rate is at 4 percent.

Pacific Investment Management Co, a unit of European financial services company Allianz SE , had $1.94 trillion in assets as of March 31, according to the firm's website.

(Reporting by Sam Forgione; Editing by Chizu Nomiyama and Bernadette Baum)

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