Bill Gross, the world renowned investor known as the ‘bond king’, has dramatically quit the $2tn investment firm he set up more than 40 years ago due to “fundamental differences” with the company.
The move sent shockwaves through the global finance industry and triggered a 35% rise in the shares in Janus Capital, the rival fund where the legendary investor will start trading in bonds.
Pimco, which stands for Pacific Investment Management Company, announced there had been “fundamental differences” with Gross, who started the business in 1971 and built it into the biggest bond investor in the world.
The fund manager, which holds the debt of governments and companies around the world, was sold to Allianz in 2000 and shares in the German insurer fell 6% on the news which followed speculation about rifts at the top, an outflow of investors, and an investigation by US regulators.
The Wall Street Journal reported that Gross had quit before being pushed.
Based in Newport Beach, California, the 70-year-old attracted notoriety in the UK in 2010 by dealing a blow to then Labour government when it warned that the country’s debt was “resting on a bed of nitroglycerine” and needed to be avoided. The pronouncement proved to be additionally embarrassing as Andrew Balls, brother of the shadow chancellor, Ed Balls, is a key figure at the bond investment house.
Andrew Balls is one of the most senior executives at Pimco after being named one of six deputy chief investment officers during a shakeup at the group in January when Mohamed El-Erian, regarded as Gross’s successor, quit suddenly.
Douglas Hodge, chief executive of Pimco, said a succession plan was in place and a new chief investment officer would be named shortly.
He said: “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.”
Darius McDermott, managing director of FundCalibre, an advisory service, said Gross was a major loss for Pimco. “This is a seismic event for the fund management industry globally. Despite some performance issues in the last few years, Gross has arguably been the best global bond manager in history.”
There are suggestions of a rift between Gross and El-Erian, who said this week his departure was in part triggered by an incident in May 2013, when his then 10-year-old daughter wrote him a list of 22 milestones in her life that he had missed.
Speculation that El-Erian could return was dismissed by Pimco, according to reports, and the fund manager was expected to name a successor to Gross before the start of the weekend.
“The obvious succession would be for Mohammed El-Erian to resume his roles but Bloomberg reports that Pimco are denying El-Erian will return,” said Guy Foster, head of research at stockbroker Brewin Dolphin. “Perhaps pre-emptively El-Erian had revealed this week that work/life balance had been the reason he left Pimco, rather than the much-covered souring of his relationship with Bill Gross,” said Foster.
US bond yields rose as Gross’s departure was announced, although this coincided with release of economic data in the US, Foster said. But he warned there was a risk of investors pulling more money out of Pimco funds. In August its flagship total return fund reported a 16th consecutive month of outflows.
In a statement issued by Janus, Gross gave clues to his reasons for leaving Pimco. “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 organisation,” he said. “I chose Janus as my next home because of my long-standing relationship with, and respect for, chief executive officer Dick Weil and my desire to get back to spending the bulk of my day managing client assets.”
Gross was also quoted as saying that his decision to quit Pimco “was not without great thought and deliberation”, wishing his friends and associates at Pimco continued success.
At Janus, Gross will work alongside Myron Scholes, the Nobel prize-winning economist best known for devising with Fischer Black the formula by which options are priced – the Black-Scholes model. He will start employment on Monday and begin managing money from 6 October in a new office in Newport Beach.
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