As even casual readers of the financial press know, Bill Gross, the bond guru, recently left PIMCO, the firm he founded, for smaller (everything is smaller than PIMCO) rival Janus. Two aspects of his departure strike me as particularly noteworthy:
–Gross has been saying very emphatically, both at PIMCO and Janus, that he has absolutely no intention of retiring or of ceding any measure of control over his portfolios to colleagues. This is despite an extended period of poor performance. If he’s thinking at all about the impact of his statements on clients, he surely believes he is reassuring them. However, it seems to me that the opposite is most likely the case.
What clients are likely hearing is that although he’s been charting a losing course for his portfolio for an extended period, he refuses to consider any changes or even to take any input from his 700+ professional colleagues. The way he’s delivering his stay-the-course message also makes him sound like an adolescent having a tantrum. It’s hard not to connect this unusual behavior with the fact of extended underperformance, raising further issues about his temperament and his judgment. This it’s-all-about-me attitude is very scary for anyone how has bet on Gross’s management prowess.
–PIMCO as a firm clearly made a terrible strategic mistake in making the idea of continuous outperformance by a single manager the exclusive focus of its marketing to clients for so many years. Yes, the message is powerful and simple to understand, but one that’s also very risky and that invests a huge amount of power in a single individual.
PIMCO would probably have imagined any possible parting of the ways with Bill Gross to be somewhat akin to Derek Jeter’s final season as a Yankees. …that is to say, a nostalgic feel-good farewell tour for a player who may be a shadow of his former self, but which validates both personal and institutional brands and generates large profits for both sides. What PIMCO got instead was the unflattering glare of tabloid coverage of a messy divorce.
Bad for PIMCO. But bad for Gross, too, I think.
As a client, how eager are you going to be to hitch your star to an apparently erratic 70-year-old who has weak recent performance, no longer has access to PIMCO’s extensive information network and whose assets under management are too tiny to have much clout in the brokerage community? The default reaction of the pension consultants who advise institutions seems to be: PIMCO without Bill Gross isn’t good enough; Bill Gross without PIMCO isn’t good enough. It seems to me that PIMCO has a much better chance of changing consultants’ minds than Bill Gross does–it already has infrastructure, other managers with strong records and huge assets under management.
If I’m correct, absent a return to his form through the long period of interest rate declines, Mr. Gross appears to be in a much more difficult position than his former firm. Much of this is his own doing.