In less than a year, Pimco, a $2 trillion mutual fund, has seen the departure of Mohamed A. El-Eran and now Bill Gross, often called “the Bond King.” Gross announced his resignation on Friday to a Wall Street that was just as shocked by his as by El-Eran’s resignation, particularly since Gross is going to work for Janus Capital, a much smaller firm.
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Some of the mystery over Gross’ departure is cleared up as The New York Times reports that Pimco and Allianz, the German insurer that runs Pimco, were discussing having Bill Gross replaced because of his management style and that some of his behavior had become erratic lately. For instance, he gave a speech wearing sunglasses and wrote a letter to an investor which was basically an elegy for his dead cat. In addition, the fund has not been performing as well as in the past. While Pimco’s Total Return Fund founded and managed by Bill Gross had, in its best years, returned 6% compared to 1.4% annually from Barclay’s Bond Fund during the same period, investors have taken $25 billion out of the bond fund this year and $65 billion in the last 16 months. Meanwhile, the Security and Exchange Commission is investigating and exchange Traded Fund managed by Gross on suspicion that its performance numbers had been inflated.
The 70 year old fund manager seemed concerned he would lose his job and contacted Jeffrey Gundlach at Double Line Capital and Richard Weil, which whom he will be working at Janus Capital. Gundlach told The New York Times, “I was wondering if they would have the courage or the audacity to actually fire him. They wanted him to resign and say something like, ‘I’m leaving in six months.’ But Bill wasn’t going to do that.” Others said Gross loved Pimco, “More than himself.”
Pimco’s loss was Janus’ gain, as the stock rose 43% on news that Bill Gross was coming on board to start an Unconstrained Bond Fund. Gross’ position at Pimco will be filled by Daniel Ivascyn. His Total Return Fund will now be managed by Mark Kiesel, Scott Mather and Mihir Worah.
Bill Gross told the New York Times, “I look forward to returning my full focus to the fixed-income markets and investing, giving up many of the complexities that go with managing a large, complicated organization.”
Douglas H. Hodge, Pimco’s chief executive indicated in the past year, the top executives and Bill Gross had “fundamental differences on how to take Pimco forward.”