By Kirsten Grind And Michael Calia
Legendary bond investor Bill Gross has left Pacific Investment
Management Co., the firm he founded in 1971, following a year of
heavy outflows from his flagship bond fund and a fight with his
former chief executive and heir apparent.
Pimco, a unit of German insurer Allianz SE, was getting ready to
fire Mr. Gross just before he resigned, according to people
familiar with the matter. The move was driven by Pimco, not by
Allianz, these people said, and comes as tensions had bubbled up at
the firm in recent weeks.
Mr. Gross will depart Pimco for a position at Janus Capital
Group Inc., where he will manage a newly created bond fund.
The news marks a huge shift in the mutual-fund industry, where
the 70-year-old Mr. Gross widely was viewed as one of the most
influential bond investors of all time. He built Pimco into a $2
trillion bond powerhouse, and his $222 billion Pimco Total Return
fund is the largest bond mutual fund in the world. Mr. Gross was
the face of the company, often appearing on television to give his
views of the bond market and other news.
But Pimco has suffered as Mr. Gross has seen investors pull more
than $65 billion from his fund since May 2013 amid spotty
performance.
After former Chief Executive Mohamed El-Erian abruptly left
Pimco earlier this year, Mr. Gross replaced him with six deputy
chief investment officers, but the move has failed to stem outflows
across the whole company. Earlier this week, the Journal reported
that the Securities and Exchange Commission is investigating the
$3.6 billion Pimco Total Return ETF for artificially boosting
returns.
Mr. Gross's behavior grew increasingly erratic in the wake of
Mr. El-Erian's departure, according to people familiar with the
matter. Several months ago, the Pimco executive committee issued a
warning to Mr. Gross that he needed to change his behavior, the
people said.
Mr. Gross's behavior didn't change, these people said, as he
yelled repeatedly at members of the committee and others.
Among the incidents that bothered Pimco executives was a lengthy
phone call in which Mr. Gross raised his voice repeatedly to two
Wall Street Journal reporters writing an article about the turmoil
within the firm, the people said. Several Pimco deputy chief
investment officers told the firm they would resign if Mr. Gross
didn't leave.
In recent weeks, the executive committee began making succession
plans in case Mr. Gross left the firm or was forced to leave, the
people said. Mr. Gross learned of those plans and approached Janus
about joining that firm, according to a person familiar with the
matter. He also approached fixed income investment management firm
DoubleLine Group, sources said.
More recently, Pimco executives had decided to ask Mr. Gross to
leave the company.
Pimco CEO Doug Hodge said in a statement Friday, "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."
Mr. El-Erian won't return to Pimco, sources said. Deputy Chief
Investment Officer Dan Ivascyn is likely to take over portfolio
management at Pimco, according to sources, although it is unclear
if he will take over Pimco Total Return Management.
Mr. Gross will manage a newly created Janus Global Unconstrained
Bond Fund and related strategies at the Denver-based mutual fund
firm, Janus said in a news release Friday morning. The move is an
abrupt change for Mr. Gross, who will be moving to a much smaller
and less prestigious firm than the one he left. Janus's CEO,
Richard Weil, joined Janus from Pimco in 2010, where he had been
chief operating officer.
Mr. Gross is slated to begin working at Janus effective Monday
and will start managing the bond fund and strategies fund Oct. 6.
He will be based in Janus's new office in Newport Beach, Calif.,
which is also where Pimco is located. He will join Myron Scholes
and other members of the firm's team that focuses on global asset
allocation.
In a statement released by Janus, Mr. Gross said, "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. I chose Janus as my next home
because of my long standing relationship with and respect for CEO
Dick Weil and my desire to get back to spending the bulk of my day
managing client assets."
Mr. Gross later issued a separate statement. "It was not without
great thought and deliberation over quite some time that I decided
to begin this next chapter," he said. "But now, after having spent
considerable time serving in senior management, it is a time for me
to reduce executive and people management responsibilities at a
larger firm and focus on the pure aspects of portfolio management
at a smaller one. Janus is the right fit at the right time in my
career--and my life."
In the news release about the hiring of Mr. Gross, Mr. Weil
said, "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."
Investors sold Treasury bonds on the news of Mr. Gross leaving
Pimco. In recent trading, the benchmark 10-year note was 6/32
lower, yielding 2.535%, according to Tradeweb. Yields rise as
prices fall.
Traders say it is a knee-jerk reaction, given that Mr. Gross is
one of the most renowned bond-fund managers in the world and the
news raised questions about what will happen with Pimco Total
Return's large holdings of Treasurys. The fund holds 41% in U.S.
government-related holdings.
"There are concerns that a large liquidation will result due to
his abrupt departure," said Tom di Galoma, head of fixed income
rates at ED&F Man Capital Markets.
Shares of Janus reached a 4 1/2 -year high earlier Friday and
recently were up 32% to $14.67. Meanwhile, shares of Allianz,
Pimco's owner, fell 6.2% in trading in Germany and dragged down the
DAX index.
Morningstar said on its website that it has placed all the
Pimco-rated funds under review following the resignation of Mr.
Gross. The firm said the "depth of resources" at Pimco "means
investors have time to reassess their options."
Write to Kirsten Grind at kirsten.grind@wsj.com and Michael
Calia at michael.calia@wsj.com
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