Bill Gross, the 70-year-old king of bonds, rushed through the offices of his $2 trillion empire on a Friday morning distributing hand-written notes. He knew his reign was over.
The billionaire co-founder of Pacific Investment Management Co. and its undisputed ruler for four decades was about to be overthrown. So just before 5 a.m. that day, on Sept. 26, he walked into Pimco’s headquarters in Newport Beach,California, and quietly placed notes on the desks of more than a dozen colleagues.
“Keep doing a great job,” Gross wrote on trade tickets used to buy and sell bonds. Of Pimco, he wrote: “Look after her.”
Gross’ exit –Â an event that, not long ago, would have seemed unthinkable –Â unleashed a crisis that Pimco is still trying to contain. His departure was followed by record withdrawals from the mutual fund he once ran and which he built into the world’s biggest. Competitors swooped in, poaching clients from a firm that oversaw more assets in bonds than any competitor ever did. The government reached out to financial firms to ensure Grosss departure didn’t destabilize the $100 trillion bond market.
Balls, Thimons
Interviews with 25 current and former Pimco employees, who asked for anonymity to discuss internal matters, paint a complex picture of the events that led to Gross’ departure, including details that have never before been published. The resignation in January of Pimco Chief Executive Officer and Gross’ heir apparent Mohamed El-Erian, 56, had prompted media reports of infighting at Pimco and resulted in a management reshuffle that strengthened some of the firm’s younger executives. At the same time, Gross’ main fund was trailing competitors, and clients had started to pull money.
Gross spent much of the past year hunting down employees who he believed were leaking information about the internal clashes to the press, according to the interviews. Among them were money managers Andrew Balls, one of Gross’ newly appointed deputy investment chiefs, and Joshua Thimons. Gross tried to fire both, but his effort was thwarted by Pimco’s new CEO Douglas Hodge, 57, and President Jay Jacobs.
On at least three occasions, Gross proposed to step back as tensions within Pimco worsened.
September showdown
Behind closed doors, the billionaire also opposed the firm’s expansion into stocks and real estate, areas seen by others as crucial to position the firm as the bond rally on which Pimco’s growth had been built showed signs of waning. In pushing for a return to a simpler business model, he questioned why the firm needed some of the executives it had hired.
By September, as Gross revived plans to fire Balls, 41, Pimco’s new senior managers turned against him. Several of the firm’s key executives offered to resign. When Gross proposed again to take a smaller role, give up management responsibilities and hand over his main fund to a successor by the end of 2015, Pimco executives were considering his ouster.
Rather than suffer the humiliation of being fired, Gross decided to walk away from the firm that he had started in 1971. A few hours later on that Friday morning, he was on a plane bound for Denver to join Janus Capital Group Inc. (JNS, Financial), the money manager run by his former general counsel and operating chief Richard Weil, 51.
‘Enduring legacy’
“Bill Gross left an enduring legacy at our firm, and we are grateful for his contributions,” Pimco’s Hodge said in a statement. “At Pimco we are guided by a set of core values of putting our clients first, acting with integrity always, being respectful of each other and delivering excellence. This is the foundation upon which Pimco is built and these are the principles that will carry us forward into the future.”
Steven Shapiro, a spokesman for Janus with Communications Strategy Group, declined to comment.
Gross built Pimco with some of the best long-term investing track records and was the face of the bond market with television appearances almost every day. Assets at the firm doubled between 2010 and 2013, making Gross one of the best-compensated money managers, with a bonus of about $290 million in 2013, a fortune even by Wall Street standards.
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