The bond king has been dethroned.
After more than 40 years years leading PIMCO, the Newport Beach-based asset management firm owned by the German insurance company Allianz that he founded in 1971, Bill Gross is now leaving under a cloud of poor performance, one very high level defection, and a Securities and Exchange Commission investigation into how a fund he managed was pricing its assets.
He will be going to Janus Capital Group, a far smaller investment company based in Denver, although he will be opening a Newport Beach office for the firm, the company said in a statement. Janus, in total, manages $177.7 billion worth of assets. Bill Gross' Total Return Fund, just one fund among many at PIMCO, manages $222 billion worth of assets while PIMCO in total manages about $2 trillion worth of assets. Gross himself has a net worth of $2 billion, according to Forbes.
Gross was the chief investment officer of PIMCO, responsible for both managing its largest fund and for its overall investment strategy, while Douglas Hodge and Jay Jacobs are its chief executive and president.
"While we are grateful for everything Bill contributed to building our firm and delivering value to PIMCO's clients, over the course of this year it became increasingly clear that the firm's leadership and Bill have fundamental differences about how to take PIMCO forward," Hodge said in a statement.
PIMCO confirmed yesterday, following a report in the Wall Street Journal, that it was cooperating with an SEC investigation of the company. The Journal reported that the investigation was into how an exchange-traded fund run by Gross, the Pimco Total Return Exchange-Traded, valued its assets.
According to the Journal, the SEC was examining how PIMCO would buy assets like mortgage-backed securities in small or "odd" lots and then immediately mark the assets values higher and book an instant positive return so as to report immediate positive investment performance. The fund is worth some $3.6 billion, far smaller than PIMCO's flagship Total Return Fund.
Gross has also been dealing with poor investment performance relative to bond benchmarks and even other PIMCO funds and was rocked by the abrupt departure of his No. 2, Mohamed El-Erian, who was widely assumed to be the 70-year-old Gross' successor. Since El-Erian's departure Gross appointed six deputy chief investment officers to help run the firm's investments while El-Erian took a role as an adviser to Allianz, PIMCO's parent company.
PIMCO said in a release that it has a succession plan "in place" and that its management board will appoint a new chief investment "shortly."
The Total Return Fund has had 16 straight months of client money leaving the fund, with $3.9 billion of outflows in August, according to Morningstar.
Janus said in a statement that Gross will start working there Monday and managing his new fund, the Janus Global Unconstrained Bond Fund, in early October.
"Bill Gross has an exemplary track record with decades of success and he will offer an exceptional approach to navigating today's increasingly risky markets with a focus on macro, unconstrained strategies," Janus CEO Richard Weil said in a statement. "His involvement provides Janus a unique opportunity to offer strategies and products that are highly complementary to those already managed by our credit-based fixed income team."
Shares of Allianz's, listed in Germany, were down 6.2%, or €8.50, to €128.15 while shares in Janus on the New York Stock Exchange are up 36%, or $4, to $15 in early trading.
PIMCO loses its founder and the man who was totally identified with the firm, both through his years (until recently) of superior investment performance and his sometimes-eccentric public persona, honed through frequent television appearances and monthly investment letters.
His August letter was titled "Goodnight Vietnam" and began "It was a matter of happenstance I suppose – certainly not serendipity. Our meeting may have been an inevitable coming together, but it was certainly not initially welcomed by me. Happenstance is the better word. Fateful happenstance."