Archive for September, 2014

AK In The News: Gross’ PIMCO Exit Throws Door Open For Institutional Competition

Monday, September 29th, 2014

I was asked to comment on an article in today’s Fundfire (A Financial Times Service) about the departure of Bill Gross from PIMCO last Friday (he left the firm to go to Janus Capital).

Frankly, I was not surprised by this move and think that it is a longer-term positive for both firms. Ever since PIMCO’s former CEO Mohamed El-Erian left in March, the firm has been in turmoil and Gross’ future there has been in question. Stories have emerged of erratic behavior, mistreatment of employees and most recently a threatened exodus if Gross stayed.

While we will never know the true inner workings of the firm, perception is reality as they say, and it had become increasingly clear that if Gross stayed so would the turmoil. His abrupt departure reinforced the animosity between the parties and the untenable nature of the relationship. From that perspective, it is good for PIMCO to get this negative attention behind them and focus on the future. They have moved swiftly to name replacements and try to begin anew.

The negative for PIMCO is that Gross’ departure will trigger automatic mandate reviews by institutional investors, and analysts expect the firm to lose billions of dollars. But this increased scrutiny (being put on “Watch” lists) was already increasing with El-Erian’s departure and underperformance. At least the departure of Gross allows the firm to position that all of the changes are over and allows it to look to the future. Already the California Public Employee’s Retirement System (CalPERS) has announced that it has no plans to move the approximate $1 billion they have invested through PIMCO.

For Gross, the move is one which allows him to try and save his reputation, which has been hurt by not only the turmoil and negative press that has been coming out, but also by the recent underperformance of his Total Return fund. There can be no question that the unraveling situation had to be affecting his ability to manage effectively. While he is leaving to manage a much smaller fund, he does have the opportunity to reestablish himself at Janus Capital and grow his influence at the firm over time.

To quote from the article: ““There’s been such a negative cast on Gross since El-Erian left the firm, [with] people blaming him,” says Andy Klausner, principal at AK Advisory Partners. “It was becoming harder and harder for him to stay,” he says, adding he wasn’t surprised to hear Gross was leaving. “All in all, it’s probably positive for PIMCO,” says Klausner. And the move isn’t bad for Gross either, as he can still ride his strong reputation as a fixed income expert, says Klausner. “It’s a good PR move for [Janus],” he says. Gross’s name will lend himself well to be a spokesperson for the firm.”