Pimco paid $1.5bn bonus pool to executives, according to disputed report

Bill Gross Interview Pic

The former Pimco star fund manager Bill Gross earned $290m last year, while the firm’s other 59 managing directors split a bonus pool of $1.2bn among them, according to a disputed news report.

Bloomberg columnist Barry Ritholtz reported the numbers, which he wrote were “based on news reports, public records and new data”.

According to the report, Pimco’s current chief investment officer, Daniel Ivascyn, received a bonus of $70m while the global head of product management, Wendy Cupps, got $50m. The CEO, Douglas Hodge, reportedly earned $45m.

Pimco’s compensation has long been a closely guarded secret, an irony as the firm’s ugly politics have often played out in the open.

Pimco disputed the numbers in a statement: “While Pimco does not comment on compensation, the figures provided to Bloomberg are not correct. For more than three decades, Pimco’s managing directors have maintained a substantial interest in the firm, currently 30% of profits and this provides an important means to attract and retain the best investment talent to serve our clients.”

Wall Street compensation consultant Alan Johnson, of Johnson Associates, called the estimate of Gross’s bonus package, if true, “a very generous arrangement”.

A superstar money manager working for a major corporation would, in a good year, would earn about $25m to $30m, Johnson said – a tenth of what Gross earned.

Hedge-fund managers, who are a slightly different breed, earn much more because their firms frequently have no publish shareholders. Hedge fund managers take their compensation as a percentage of the money they manage and the returns they deliver. One of the highest-paid hedge-fund managers is Steve Cohen, of the former SAC Capital, whose bonus and salary reportedly totaled $2.3bn in 2013.

Johnson said the last time a corporate money manager earned a salary the reported size of Gross’s pay was in the 1980s when “junk bond king” Michael Milken reigned at Drexel Burnham Lambert. In 1987 alone, Milken made $500m, not adjusted for inflation, according to the New York Times.

As with Milken, Gross’s high pay is widely attributed to the fact that he built the business. (Gross’s nickname, similarly, is “the bond king” and he has called himself “the Justin Bieber of bonds”.) Gross founded Pimco and he has openly said to his coworkers that the firm wouldn’t have accumulated $2tn in assets without his name and reputation. Over the lifetime of his Total Return Fund, he generated about an 8% return for his investors each year.

However, Gross has struggled to turn in decent returns to his investors for the past few years, creating a significant rift between his pay and his performance. In 2011, his Pimco Total Return Fund lagged behind a major bond index by nearly 4% – a giant rift. The past two years of returns, similarly, were characterized by significant outflows as investors withdrew their money.

Gross’s pay “was a reflection of the business arrangement in the past, not of his current value,” said Johnson.

It’s rare for corporate money management firms to pay such high salaries, primarily because many of them have to answer to shareholders. Pimco is owned by the giant German insurer Allianz, which has been defending the subsidiary all year.

Gross’s time at Pimco was characterized by frequent conflicts with his co-workers and eccentric behavior including, reportedly, banning anyone from talking to him in the mornings.

He was known for his confrontational, brash style, once reportedly challenging his co-CEO by asking, “I have a 41-year track record of investing excellence. What do you have?” and declaring “I’m tired of cleaning up your shit.”

“They were known for being high payers, and [these bonuses] may explain why many of them stayed for so long, because if they were unhappy under his tutelage, they didn’t want to leave.”

At Allianz’s annual meeting in May, the CEO, Michael Diekmann, mounted a spirited defense of Pimco after Mohamed El-Erian left.

“We have more than earned back all the expenses spent on the purchase of Pimco over the past few years,” Diekmann told shareholders. He said that last year, Pimco made a “significant contribution” to Allianz’s earnings.

“We very rarely in business have a numerical measure of how important you are,” Johnson said. “[Gross] went to Janus and none of the [investor] money followed. So at some point he stopped being as important as he thought he was.”

Powered by Guardian.co.ukThis article was written by Heidi Moore in New York, for theguardian.com on Friday 14th November 2014 17.26 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010


JefferiesAnd the Best Place to Work in the global financial markets 2016 is...

Register for Financial Markets News Alerts