The fault in our star managers?

Why the Money Hasn't Followed Bill Gross

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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When Bill Gross left Pimco, I said we'd have to wait and see how markets reacted. Well, we have an answer now: Investors quickly pulled billions out of Pimco's flagship Total Return Fund, which Gross managed.

Here's what's really interesting: Pimco's loss is not Janus's gain. While Pimco went through billions in redemptions, the fund Gross now manages picked up just $66 million in September. Which is not nothing, but is not exactly billions, is it?

This suggests that a lot of investors were staying in the fund more from inertia than from a particular attachment to Bill Gross. Many people don't like making investment decisions because they will feel worse if they actively do something that costs them money than if they forgo extra returns by leaving their money where it is. I could throw in all sorts of fancy behavioral psychology terms to gussy that up, but I'm not sure they'd make it any clearer, so let's leave it there.

When Gross left, "proceed as usual" was no longer an available default option. So those people removed their money, and they are now having to make an active decision that could cost them money and trigger loads of regret. When faced with that decision, many of them aren't sure they prefer Bill Gross to the many other fixed-income managers they could choose.

It's an interesting lesson about a lot of things, and one of them is about "star managers." There's a lot of path dependence in being a star manager, from reputational benefits (Warren Buffet moves the market when he makes an investment, because "OMG Warren Buffet thinks this company is great!") to money that got stuck to you earlier in your career and now has become hard to dislodge. I'm not saying this is the only reason that high-profile investors are great. But it's something to be considered in any objective assessment.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at

To contact the editor on this story:
Brooke Sample at