Bill Gross, who built a $2 trillion investment house in Newport Beach and earned the title “Bond King” on Wall Street, is leaving Pacific Investment Management Co., better known as Pimco.
Gross will join Janus Capital Group Inc. on Monday to manage a recently launched bond fund from a newly established Newport Beach office. Pimco, which manages $1.97 trillion in assets, dwarfs Janus, which had $178 billion under management as of June 30.
“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,” Gross said in a statement from Janus, which is based in Denver.
Reaction: Gross exit from PIMCO shocks the financial industry
His departure follows a tumultuous year that started with the resignation of Pimco CEO Mohamed El-Erian, Gross’s heir apparent, amidst reported tensions between the two. Investors have been pulling money from Gross’ flagship bond fund as speculation swirled about clashes between the chief investment officer and other senior members of the firm.
According to the New York Times, Gross, 70, may have jumped before he could be pushed. Pimco CEO Douglas Hodge didn’t do much to dispel such notions in the firm’s official announcement.
“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 announced that deputy CIO Daniel Ivascyn will replace Gross as “Group CIO.” Ivascyn and colleague Alfred T. Murata, co-managers of the $38 billion Pimco Income Fund, were named U.S. fixed income managers of the year for 2013 by Morningstar.
One former Pimco executive, David Young, thinks Gross may take top talent with him.
“I think there will be a polite ransacking of Pimco,” said Young, who left the firm in 2008 and later founded investment manager Anfield Group LLC in Newport Beach.
Like much of Wall Street, Young – one of many Pimco alumni who helped cultivate the Southern California financial scene by spinning off new firms or running others – was shocked by the announcement.
“I’m speechless, totally surprised,” Young said. “I didn’t see this coming.”
Investors might also hit the road. They’re likely to withdraw between 10 percent and 30 percent of Pimco’s assets under management, according to Bernstein Research analysts.
“We would expect a good deal of Pimco clients switching to Janus, simply attracted by the long track record of Bill Gross,” the analysts wrote in a Friday morning research note.
Janus Capital’s stock rose 43 percent on the news, to $15.89 a share. Shares of Pimco’s parent company, German insurer Allianz SE, closed down 6 percent in European trading, to $128.20, the biggest drop in almost three years, according to Bloomberg.
Young noted that Gross’ departure comes on the back of a Securities and Exchange Commission probe of whether Pimco inflated returns in its Total Return Exchange-Traded Fund.
“When all those people sell those bonds, we’ll find out what they’re really worth,” Young said.
California Public Employees’ Retirement System, the nation’s largest pension fund and a Pimco client, said it’s monitoring developments at the firm. Pimco manages an international bond fund for CalPERS, valued at approximately $1 billion and representing 1.5 percent of the pension system’s fixed income program, according to a CalPERS statement.
“We have no plans at this time to make changes with our Pimco mandate,” CalPERS said, noting it would conduct a thorough analysis.
Some investment consultants and institutional investors put Pimco on a “watch list” after El-Erian left. Henry Yoshida, who advises on about $1.6 billion of 401(k)-type assets, told Bloomberg News that given Gross’ reputation and track record, many had been willing to give the firm time to regroup.
“The news today changes all of that,” said Yoshida, who is based in Austin, Texas. “Our group and many others will begin making recommendations to map assets from Pimco to another fixed income fund.”
“For Pimco, this raises a real question mark about the stability of the entire organization,” Burton Greenwald, a mutual-fund consultant, told Bloomberg. “Until they show some positive developments, they will have a difficult time raising assets. Whatever momentum they had will be lost.”
Gross, who has a net worth of $2.3 billion according to Forbes, has donated heavily to causes in Orange County and beyond.
The Pimco co-founder and his wife, Sue, gave $20 million in 2005 for a women’s center at Hoag Hospital in Newport Beach, and $10 million for the stem-cell research center at UC Irvine in 2010.
In September 2013, the Smithsonian National Postal Museum opened the William H. Gross Stamp Gallery in Washington, D.C. Gross, the lead donor, gave $10 million to the Smithsonian Institution to help establish the gallery.
Bloomberg and the New York Times contributed to this report.
Contact the writer: musheroff@ocregister.com
