Markets

Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

When onetime bond king Bill Gross was ousted from Pacific Investment Management Co. in 2014, both he and the behemoth asset manager he co-founded had injured feelings and a lot to prove

Gross, who once managed the world's biggest debt mutual fund during an unprecedented bull market in bonds, wanted to demonstrate he was a star regardless of his portfolio's size or the direction of debt markets. And Pimco, which oversaw nearly $2 trillion at the time, sought to prove that it was far bigger than just one man, albeit someone who may have been the most well-known debt manager in the United States.

The result was a messy vindictive lawsuit that only served to remind investors that neither party has been as successful apart as they were together. The best option, as evidenced by a legal settlement announced on Monday, was to kiss and, if not make up, at least stop squabbling in front of the children and neighbors. Both sides released a joint statement Monday dripping with all the niceties and cordiality of a Jane Austen dinner party.

"Pimco has always been like family to me and, like any family, sometimes there are disagreements," Gross affirmed in the statement. 

Gross "built this business from the ground up and we have great respect and admiration for his talents,” Dan Ivascyn, Pimco's group chief investment officer, gushed. 

Pimco agreed to pay Gross $81 million to settle his breach-of-contract lawsuit, the proceeds of which will be donated to charity. (The statement noted that the suit has "never been about money," although Gross had been seeking at least $200 million in damages and accused younger co-workers of conspiring to get some of his 20 percent share of the profit-sharing bonus pool.)

More important, Pimco showered Gross with recognition and adulation for his contributions to the Newport Beach, California-based firm. the firm created a "founders room" in honor of its past leaders and founders. Pimco's foundation named Gross a "director emeritus" while establishing an annual "Bill Gross Award."

These gestures make sense. As Gross said last year, "I knew I didn't have much to gain except my self-respect," according to television interview at the time.

This arrangement was described as "amicable," which is one way to look at it if you exclude the millions of dollars and hundreds of hours spent by attorneys to litigate the suit. But behind the gooey mutual-admiration accolades are some harder truths.   

Humbler Home
Janus, which oversaw $195 billion as of 2016, has fallen in shareholders' eyes
Source: Bloomberg

After more than two years, Gross failed to realize his ambition of proving his reputation away from Pimco. He was unable to replicate his performance at his new firm, Janus Capital Group, where his Janus Global Unconstrained Bond Fund has performed worse than 67 percent of its peers so far this year, with less than a 1 percent return, according to Bloomberg data. The fund has failed to grow beyond $2 billion of assets compared with the Pimco Total Return Fund's 2013 peak of nearly $300 billion of assets.

Lagging Behind
The unconstrained bond fund that Bill Gross manages has lagged behind its peers
Source: Bloomberg, Morningstar

Pimco, on the other hand, clearly wanted to finally close the book on the Gross years, especially at a difficult time for active asset managers generally. The firm experienced years of heavy withdrawals as investors fled from its Total Return Fund that Gross had managed and generally pulled money from active funds in favor of passive strategies. Recently, its assets have stabilized and even started increasing a bit, but it still lingered somewhat under a Gross-shaped shadow.

Big Shrink
Pimco's Total Return Fund has lost more than two-thirds of its assets since its peak
Source: Bloomberg

Like many contested divorces, the pain of the open wound started to outweigh the desire to exact some sort of retribution. And just like in a divorce, sometimes the smart play is to throw in some money and a few kind words, just so everyone can move on with their heads held up. It's a pity it often takes so long.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net