Fascinating press about the dramas at Pimco this week. All was not well among the senior management team and rumours (and facts) had been circulating since well before the acrimonious departure of Mohamed El-Erian in January this year.
It all culminated in the dramatic exit last weekend of Pimco co-founder and king of the bond-markets Bill Gross. Pimco’s CEO sent him off with a farewell slightly short of what you would expect after a 43-year career at one company:
“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”.
Ouch. Worse for Gross, perhaps, are the questions being asked about his investing skills after a few years of underperformance. John Authers, of the Financial Times, suggests Gross may have been a one-trick hedgehog, and one fellow fund manager suggests his new employer might be perfect: “Gross knows all about losing clients, so Janus looks perfect for him.”
Chuckle chuckle chuckle.
It’s all a bit of a laugh for those of us on the outside. But if I was a client I would be furious. The whole circus is going to cost Pimco clients a lot of money. Pimco's size has the potential to dramatically move markets and just the announcement of Gross’s departure has investors the world over rushing to pre-empt Pimco’s inevitable sell down. A number of large pension funds have already announced their redemptions.
That is somewhat inevitable if Gross is going to leave. But he’s going to a competitor. And he starts next week. Next week! With full knowledge of every position Pimco holds and which ones they are going to have trouble liquidating.
How did Pimco and its owner Allianz let this happen? Since when did anyone work for a large financial institution without a non-compete? And how could Gross do it to people who trusted him with their money? I don’t care whether there is a contract in place or not. I don’t care how much you hate your colleagues. You have a moral obligation to do the right thing by your clients.
It’s an obligation Gross has clearly failed.
Janus’s market capitalisation jumped more than $700m when the news came out that Gross had switched horses, presumably on the basis that plenty of clients were going to follow. I wouldn’t give a cent to Janus or Pimco after this debacle.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.