Bond King No More, Gross Says He’s Got Something to Prove

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Bill Gross: We Try to Keep Our Philanthropy Quiet

It’s a question only Bill Gross can answer: Why, after earning a reputation as the greatest bond investor of all time, after building Pacific Investment Management Co. into a $2 trillion colossus, after losing a power struggle with his own colleagues, didn’t he just walk away?

Instead, Gross stunned the financial world in September by leaving for Denver-based Janus Capital Group Inc. The former “bond king” now manages less than 1 percent of the assets he once ran at Pimco, the firm he co-founded in 1971.

“One of the reasons that I’m still doing this is just to prove that, you know, I still got it,” Gross, 71, said in an April 29 interview at his office in Newport Beach, California. “You know, like a 38-year-old quarterback that still has an arm and can take us down to the Super Bowl.”

John Elway, meet Bill Gross.

Like Elway’s run as quarterback for the Denver Broncos from 1983 to 1998, Gross’s tenure as manager of the Pimco Total Return Fund still stands out as exceptional. Since 1987, when Gross started it, the fund has returned an average of 7.8 percent a year as of the end of the first quarter, a full point higher than the Barclays U.S. Aggregate Bond Index.

So far, Gross’s performance at Janus has been disappointing. The Janus Global Unconstrained Bond Fund he manages is down 0.7 percent this year, trailing 95 percent of comparable funds, according to data from research firm Morningstar Inc. From when he took over on Oct. 6, the fund declined 1.15 percent, lagging behind 84 percent of peers.

“My target is: How much can I outperform the market on a daily basis?” Gross said. “When I go home, I’ll look at those numbers and either feel good or bad.”

‘Different World’

Gross’s “unconstrained” strategy allows him to invest across assets, including stocks, to boost returns in a low-interest-rate environment. Lately, Gross said he’s been betting on disparities among certain stock prices, so-called arbitrage. He also dabbles in foreign markets, like a recent bet against German bunds. Gross then uses derivatives to add leverage, ideally boosting the fund’s returns.

“It’s not a long-short, it’s not hedged,” Gross said, referring to other types of investment strategies. “It’s just a different world in which the expectation is you won’t lose very much money, but perhaps you can make 4, 5 or 6 percent.”

In his last years at Pimco, Gross battled with his colleagues. Some resented his management style, some objected to his declining returns and grew increasingly alarmed at the pace of withdrawals from the Total Return Fund.

No ‘Pimco II’

Gross said he has no interest in building a “Pimco II.”

“It’s easier, with $2 billion, to move money, the liquidity is obviously better,” he said in the interview. “And it’s less onerous in terms of organization and decision-making, where you have to build a consensual outlook.”

Gross, who became a billionaire building Pimco, could have retired to focus on his philanthropy.

“I didn’t like how I left Pimco, and I didn’t care for the aspersions that somehow I might have lost my touch,” Gross said. “I don’t think I’ve lost my touch. I’m in this seven days a week, 18 hours a day.”

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