When I first saw the headline on CNBC that Bill Gross was leaving PIMCO, I didn’t pay close attention because I assumed it was one of those headlines that didn’t have any facts but asks a provocative question, like ‘Is Bill Gross Leaving PIMCO?’
It’s almost an absurd question, but that’s exactly what happened on Friday after a series of bad public stumbles, some of which I’ve chronicled already (click here).
Back in 1971, when Gross co-founded PIMCO, actively managed bonds funds were uncommon. Funds at the time certainly bought bonds, but they simply held them to maturity, unlike Gross who quickly developed a reputation as a canny trader.
In 1987, PIMCO launched its first, and now flagship fund, PIMCO Total Return. Since inception, the fund has earned 7.9 percent annually, beating the Barclays Aggregate Bond index (the Agg) by 1.1 percent per year after fees. That’s an impressive feat in stocks and unheard of in bonds.
That kind of performance record, along with a ubiquitous media presence, brought in assets and at the peak in 2012, that single fund had $285 billion in assets.
Not long before assets hit their high mark in 2012, Mr. Gross’ golden touch appears to have tarnished. In 2011, he made a big, public bet against bonds that cost him a four-percentage point loss relative to the Agg. His fund was still up by 3.74 percent, but the Agg gained 7.84 percent that hear.
He came roaring back in 2012, gaining 9.93 percent versus 4.21 percent for the Agg, but it appears that it was too late. In 2013, funds started pulling their money out in droves and by the end of the year, redemptions reached $41 billion.
As if the performance stumbles and declining assets weren’t enough, Gross’ co-Chief Investment Officer and heir-apparent, Mohamed El-Erian, quit abruptly and started an ugly, public feud.
All of a sudden, stories about Gross’ mean-spirited and erratic behavior, like disallowing employees from looking him in the eyes before 11 am, were all over the financial press.
According to the Wall Street Journal, it all came to a head this week when he sent a nasty email to his superiors about what was wrong with the firm and what he thought should be done about it.
His lieutenants reportedly had enough and threatened to quit if he wasn’t dealt with, so his employer, Allianz Bank, was preparing to offer him a retirement package or the door and when Gross found out, he effectively said, ‘You can’t fire me – I quit!’
He starts work today at Janus, a much smaller fund complex that’s generally been considered an also-ran after poor performance following the tech bubble and bust.
Word of Gross joining Janus shot the stock up by 43 percent, adding almost $1 billion in market capitalization to the company, although Allianz market capitalization lost $4 billion, so it’s hard to say what he’s ‘worth’ exactly.
Friday Gross said that he was happy to be back managing bonds for clients, rather than a complex organization.
I have to think that at age 70, this isn’t what he hoped his last years in the industry would look like.
What if he had retired like Peter Lynch and set his record in stone, forever unimpeachable? What if he had found a great successor (unlike Lynch) who could build on what Gross had built?
What if, like Derek Jeter, he walked off the field with a stellar career behind him, one more RBI single under his belt and could relish in everyone’s applause, even from lifelong rivals in their backyard.
Now that’s a legacy.