Abigail with attitude: Pimco – the Tom and Jerry show
This month, this column is all about investment management. For as long as I can remember, investment bankers and traders have been the rock and roll stars of the financial world.
They had the big personalities and the lavish lifestyles to go with it. Some bankers even made it off the pages of the financial press and in to books read by the general public. John Gutfreund made a cameo appearance in Liar’s poker. Henry Kravis was featured in Barbarians at the gate. Just about every Wall Street leader had a starring role in Too big to fail.
The world of investment management is more sedate. Of course, hedge fund managers are different. And although they like to duck beneath the radar screen, we are fascinated by their antics because of their waves of wealth.
For example, the tabloid press gleefully regaled us with the feud between billionaire hedgie Louis Bacon (of Moore Capital) and his clothing mogul neighbour Peter Nygard regarding their adjoining estates in the Bahamas. Apparently, Bacon installed military-grade speakers on his land to upset Nygard. Things escalated and there are now multiple lawsuits between the two men.
But few people show much interest in traditional fund managers: those taciturn fellows who toil away from nine to five and occasionally have an alcohol-free lunch with an actuary. There is however an exception to every rule.
Step forward the suits of Pimco. Think Mad Men, but a lot madder and badder!
To be fair, the Pacific Investment Management Company has always had a patina of glamour because it is based in Newport Beach, California. There wasn’t much sunshine in the Sunshine state when employees had to be at the office at 4.30 in the morning in order to be on the same time zone as Wall Street. But that was the power of Bill Gross. He set up the company, and it worked where he wanted to work, even as it grew.
|Gross and El-Erian seemed joined at the hip,
like Butch Cassidy and the Sundance Kid.
They turned out to be more like Tom and Jerry
Gross founded Pimco in 1971 as a unit of the Pacific Life Insurance Company with – legend has it – $12 million of assets. Some 40 years later, the firm is one of the largest global fixed-income managers and has nearly $2 trillion invested. In 2000, the German insurance company, Allianz bought a majority stake in the business, but Pimco has always been run as a stand-alone entity.
Dubbed the bond king, Gross is a youthful-looking 70-year-old. Indeed, so youthful is Gross’ appearance that some jealous competitors mutter cantankerously and without any evidence about plastic surgery. But let’s face it, who over the age of 35 hasn’t had a little work done if they live in Los Angeles?
Since 2008, Gross had shared the title of Pimco’s co-chief investment officer with Mohamed El-Erian. Erudite El-Erian spent many years at Pimco before moving to run Harvard’s endowment fund in 2006. That gig didn’t last long and he was soon back at his alma mater, where he was viewed as Gross’ deputy and heir apparent.
Moustachioed Mohamed resembles a modern day Omar Sharif and is a prolific contributor to the financial media, popping up frequently on business network CNBC and penning numerous opinion editorials. Gross and El-Erian came up with the phrase ‘the new normal’ to describe the low growth, low interest-rate environment that enveloped developed markets after the financial crisis. They seemed joined at the hip. They took on the world. They were Butch Cassidy and the Sundance Kid.
But in truth they turned out to be more like Tom and Jerry.
When El-Erian abruptly left Pimco in January, the rumour mill exploded with tales of Gross’s autocratic management style and the raucous rivalry between the two men. Gross himself hinted at Pimco’s competitive atmosphere when he gave Bloomberg Businessweek an interview this spring. The article, titled Am I really such a jerk?, quoted the bond king. “We want to have a fighting team that sinks the other navy ships, as opposed to a fighting team that’s happy and has to man the lifeboats.”
El-Erian was meant to be the succession plan for the sprightly septuagenarian, Gross. So alarm bells should have started ringing in January and savvy investors might have wondered if it was time to diversify some of their assets away from Pimco.
But the announcement in late September that Gross himself was leaving the firm caused uproar. Remember that in January, after El-Erian did a runner, Gross had tweeted defiantly: “Pimco’s fully engaged. Batteries 110 % charged. I’m ready to go for another 40 years!”
A mere nine months later Gross had gone. Forget Gone Girl, it’s all about Gone Gross. It’s quite rare for founders to bolt from their own firm. Can anyone see Larry Fink doing the same at BlackRock?
The rumour mill talks about Gross jumping before he was pushed. There were, apparently, last-minute discussions with rival bond baron, Jeff Gundlach of DoubleLine Capital, which came to nothing. I suspect the room might not have been big enough to accommodate both men’s egos.
Gross left Pimco on September 25 and joined Janus Capital, where he set up and manages a new fund, on September 29. That’s a pretty quick turnaround in any industry and particularly finance, where money can be expected to follow a well-respected manager.
Allianz was left scrabbling in the dust for almost a day, its shares down 6%, before it announced a successor to Gross. Gross had been directly running some $200 billion of assets for Pimco in its Total Return Fund. Did no one in Allianz’s large legal department think to draw up an employment contract for Gross with punitive noncompete clauses?
Who or what is Janus Capital? Although it has over $150 billion in assets, it is hardly a household name and is based in that financial outpost, Denver. Gross, by the way, will remain in Newport Beach, California. So no change there then.
Gross is a billionaire twice over, so why this graceless rush for the exit and panic-stricken start at a new firm (which by the way is run by Dick Weil, a former employee of Gross)? Surely he could afford to take a month’s holiday and go fishing?
It might have been an auspicious time to draw a line. We might be coming to the end of the fantastically remunerative rally for the US bond market. The interest-rate cycle is turning and it will be harder to make money in bonds.