Bill Gross, who has been running the $1.5 billion Janus Global Unconstrained Bond Fund since leaving Pacific Investment Management Co. last year, is getting a co-manager.
Janus Capital Group Inc. on Wednesday said that Kumar Palghat, who worked with Gross at Pacific Investment Management Co. for 10 years, will help run the fund, with Gross staying on as lead manager. Janus also bought a majority stake in Palghat’s firm, Kapstream Capital Pty Ltd, a global unconstrained fixed income manager with $6.6 billion in assets.
Janus is beefing up its macro fixed-income business and adding managers to support Gross, 71, who has struggled to attract new money amid a challenging market. His fund declined 0.1 percent this year, trailing 77 percent of rivals, according to data from Chicago-based Morningstar Inc. In a March interview with Bloomberg Television, Gross said he’ll keep trading for the next two to four years to prove he can still beat the market.
“Bringing in people who can support Gross makes a lot of sense,” said Russel Kinnel, director of fund research at Morningstar. “Bill Gross with a small team makes more sense than Bill Gross with no team. At Pimco he had any army of traders and analysts helping him.”
Janus, which is based in Denver, will make an initial upfront cash payment of about $85 million for Kapstream, which was founded by Palghat and Nick Maroutsos. It has the option to purchase the remaining 49 percent stake in the future.
Founded in 2006, the Sydney-based firm has clients in Australia and the U.S., and three investment principals, Palghat, Maroutsos and Steve Goldman. Palghat will remain manager of the Kapstream Absolute Return Income Fund, which is only available to investors in Australia.
“Combining the success and experience of Kapstream’s unconstrained fixed income business with Bill’s reputation as one of the world’s most successful fixed income investors creates a powerful opportunity for our clients and for Janus Capital,” Dick Weil, Janus’ chief executive officer, said in a statement. Weil also worked at Pimco.
Gross, who left Pimco Sept. 26 and started running his current fund on Oct. 6, was praised by Weil as a game changer when joining Janus. He won a $500 million investment from George Soros and put more than $700 million of his own wealth, estimated at $2 billion by the Bloomberg Billionaires Index, into the fund. The fund suffered outflows February and May.
In April, Gross correctly predicted that yields on the 10-year German bund would climb, calling the trade “the short of a lifetime.” He later acknowledged he did a poor job of putting his idea into practice.
Gross, who co-founded Pimco in 1971 and built the Pimco Total Return Fund into the world’s largest mutual fund at its peak in 2013, has said he wants to prove that he hasn’t lost his touch.
“I wanted to show clients and the world, to the extent that they’re interested, that I can continue to produce a track record like I did at Pimco,” Gross said in a Bloomberg Television interview March 2. “I won’t have five to 10 to 15 years leeway like I had at Pimco to do that, but certainly for the next two, three, four years.”
Gross this week joined the growing ranks of money managers expressing concern that a decline in liquidity could exacerbate losses for fund investors during a market decline.
“Long used to the inevitability of capital gains, investors and markets have not been tested during a stretch of time when prices go down,” he wrote in an investment outlook posted on June 30. “It’s then that liquidity will be tested.”