What's not to like.

Photographer: Scott Eells/Bloomberg.

Bill Gross Still Likes Bill Gross

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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One important trend over the last few years involves investing legends -- George Soros, Carl Icahn, Steve Cohen -- leaving behind the business of managing other people's money to concentrate on investing their own money without the pressure of outside investors. And ... well, and here is a story about Bill Gross, whose Janus Global Unconstrained Bond Fund attracted $1.1 billion of investor money in October and November, after he left the once-$293-billion Pimco Total Return Fund to join the then-$13-million Janus fund. The story is that more than $700 million of the Janus money came from a "Morgan Stanley wealth-management office in La Jolla, Calif.," which happens to be the "office where one of Mr. Gross's personal financial advisers works."

Now, there are of course several possible explanations of this. Perhaps Bill Gross demanded that his Morgan Stanley advisers steer assets his way, as a condition for keeping his presumably large and prestigious business. Perhaps Bill Gross's personal financial adviser has a clientele that includes a lot of Bill Gross's friends and admirers, who all wanted to follow him to Janus.

But the most realistic explanation seems to be that most of that money is Gross's, especially since Gross (sort of) said on Twitter "yes I do believe in and invest in Janus Global Unconstrained Bond Fund!" Why would he do that? Well, again, you can look around for reasons. Getting the fund above $1 billion was "a key threshold for large investors," allowing Gross to attract institutional money, for one thing. For another, it's good signaling, showing that Gross has skin in the game ("What every investor should want to see from every portfolio manager is the manager putting their own assets in the product," says a guy), and that his fund is relatively robust to client withdrawals ("Everybody’s going to fire Bill before Bill fires himself," says that same guy). 

But, again, the simplest explanation seems like the most plausible. Bill Gross is a smart guy who is good at investing. He is also a guy who knows that he's good at investing. He is also a guy with a ton of money. Why should't he invest it with Bill Gross? Some people eat their own cooking just because they think it's delicious.

Really, the better question is why so little of Gross's money is in his own fund.  Bloomberg lists his net worth as $2.0 billion; Forbes has it at $2.3 billion. He made $290 million just in 2013. Assuming that all of the $700 million in La Jolla money was his, that's still only like 30-35 percent of his net worth that's invested in his own flagship fund. That could just be the problem with being a bond manager: No matter how unconstrained your bond fund is, it's still a bond fund, and if you've got a couple of billion dollars you might want a different risk/reward proposition than is offered by a mostly-investment-grade bond strategy.

Which I suppose raises another question: How'd you like to be Bill Gross's personal financial adviser? On the one hand, that's like being the Pope's confessor. On the other hand, do you think he's allowed to make eye contact? Do they communicate only in writing? More generally, wouldn't you find it a little intimidating to tell Bill Gross where to invest?  Bill Gross is an investing legend. Perhaps his Morgan Stanley guy in La Jolla is also a legend, but if so he's a legend in more rarefied circles.

One more question might be: Why shouldn't fund investors know more about all of this? Here's Janus's view:

A spokesman for Denver-based Janus said the firm doesn’t comment on specific fund shareholders and their investments “as a matter of policy and out of respect for the privacy of the firms we serve and their mutual fund investors.” The spokesman also wouldn’t comment on how much of the fund is made up of Mr. Gross’s money.

And, I mean, sure, I'd be a little miffed if Janus disclosed how much money had invested in its funds.  On the other hand, senior executives of big companies are required to disclose how much of their companies they own, on a fairly specific and fairly real-time basis. This is viewed as pretty important to investors: If you're a shareholder in a company, you want to know whether its chief executive officer owns a lot of shares, and whether he's buying more or selling what he's got.

Senior managers at mutual funds, not so much. I mean, a little. Funds have to disclose their managers' ownership stakes, but on a pretty significant lag. On so significant a lag, in fact, that Janus's disclosure for Gross looks like this:

Source: Janus.

That's from a "Statement of Additional Information" last updated on November 20, after Gross had started moving money into the fund. But his ownership stake only had to be current as of June, several months before he started.

And even when it was current ... I mean, here's Gross's Pimco disclosure:

That's ownership as of March 31, from a Statement of Additional Information current as of August 25. It covers only Gross's ownership in funds he manages, and it is not, you know, exact to the last decimal place. "Over $1,000,000" is perhaps a meaningful disclosure threshold for old-timey, modestly paid mutual fund managers, but for a guy making $290 million a year it is not particularly descriptive. "Over $1,000,000" presumably wasn't a meaningful amount relative to the 12-digit size of Pimco Total Return, but the disclosure isn't granular enough to know whether it was a meaningful amount relative to Gross's net worth, or to the rather smaller size of Janus Global Unconstrained for that matter.

Here you can read the Securities and Exchange Commission's 2004 release adopting the mutual-fund-manager disclosure rules. It is pretty interesting reading! One fun fact is that many commenters had pushed for even less granular disclosure, with a top bucket of "over $100,000." 

These commenters expressed concern that the proposed dollar ranges would require portfolio managers to provide too much information about their net worth and would unduly infringe on their privacy interests. Another commenter, by contrast, argued that any maximum dollar range chosen should accurately reflect the likely value of shares owned by a representative cross section of managers in the mutual fund industry. This commenter suggested that if a lower maximum range of $100,000 were used, an overwhelming majority of managers would likely exceed that threshold. Finally, other commenters suggested that we require disclosure of the precise number of shares of the fund owned by a portfolio manager.

Emphasis added.  The SEC ultimately decided to keep the "over $1,000,000" top bucket, on the theory that it would "reflect a level of investment that would be significant." For most mutual fund managers, anyway. But there are occasional exceptions.

  1. Doesn't that seem a priori plausible? If I were Bill Gross's financial adviser, I'd be advertising that everywhere. And presumably that advertising would draw other Bill Gross admirers as clients.

  2. I mean obviously the other question is why so little of other people's money is in his fund, but give him time I guess?

  3. Also: Sure he's just a bond manager, but doesn't he work with people who manage equity, etc., funds? Wouldn't you expect him to have a lot of money in once-Pimco/now-Janus equity funds? Bloomberg lists a couple of investments in closed-end Pimco funds, e.g. the Pimco Corporate & Income Opportunity Fund, of which Gross and his family owned some 3.4 million shares as of August, worth around $56 million now. There are other bits and bobs like this, from funds where he needs to file Form 4s, but the bulk of the regular mutual funds don't show up. 

  4. Actually that seems to be true. His name is Robert Inbody, and this LinkedIn page has him listed as Barrons Top 100, Financial Times Top 400 and Rep Magazine Top 1000 financial adviser, as well as a founding member of the Morgan Stanley Chairman's Club. So he's a high-powered guy. Also presumably he's not just, like, "Hey I got a hot tip on a stock"; a high-end personal financial adviser is going to be at least as interested in tax planning, family trusts, etc., as he is in like asset allocation and investment advice.

  5. None that I know of, but I've collected a lot of 401(k)s in my time so, no promises. At least two of them have some money in Pimco Total Return, incidentally, though that's more a commentary on the choices available in my 401(k) plans than on my own desire/non-desire to follow Bill Gross wherever he goes.

  6. And so omits both the closed-end funds that I mentioned in footnote 3, which are specifically disclosed elsewhere, and other (e.g. equity) Pimco funds, where his investment might be (have been) zero or enormous or anywhere in between.

  7. This is also good:

    Several commenters argued, however, that while the level of a portfolio manager's securities ownership may be an indicator of the manager's confidence in the fund's investment strategy where the manager owns shares in the fund, it does not necessarily follow that a manager who owns few or no securities has any less confidence or is any less concerned about the fund's performance. We continue to believe, however, that a portfolio manager's ownership in a fund provides a direct indication of his or her alignment with the interests of shareholders in that fund. While a manager could have reasons for not holding shares of a specific fund that are unrelated to the manager's lack of confidence in the fund, e.g., that its investment objectives do not match the manager's, we note that a fund is free to include an explanation of these reasons in its disclosure.

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:
Matt Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net