NEW YORK (AP) – The biggest star in the bond market shocked the financial world Friday by leaving the huge money management firm he has led for four decades and joining a much smaller rival.
Bill Gross, who co-founded the investment giant Pimco in 1971 and runs its $222 billion Total Return Fund, said he would join Janus Capital Group. The prospect that investors would follow the guru-like fund manager and pull their money out of Pimco sent the stocks of several rival investment companies soaring.
Janus jumped 43 per cent. Allianz, the German company that owns Pimco, dropped six per cent.
“Many people invested in Pimco’s Total Return know Bill Gross, and they want his expertise,” said Todd Rosenbluth, director of fund research at S&P Capital IQ. “Money will leave Pimco. It’s just a question of how much.”
Gross has trounced rivals for years with deft moves in and out of bonds, earning the title “Bond King” and attracting hundreds of billions of dollars into Pacific Investment Management Co. But lately his performance has lagged that of many rivals and his management style has raised eyebrows.
Gross will oversee bond investments at Janus and run a recently launched fund called the Unconstrained Bond Fund from a new office in Newport Beach, California. He starts at Janus, which is based in Denver, on Monday.
Gross writes monthly commentaries on markets that are widely quoted, and his utterances on business TV shows can move markets.
But for all his star power, Pimco’s flagship Total Return hasn’t fared well recently. The fund lost 2.3 per cent last year, its first loss in more than a decade, according to S&P Capital IQ. It’s done better this year, returning three per cent. Still, that is half of a point less than the average bond fund.
In addition to lackluster results, investors have been rattled by reports of a regulatory probe into the way Pimco has been valuing bonds in a smaller fund and by management turmoil at the company. In January, Gross’ heir apparent, Mohamed El-Erian, abruptly resigned. Investors have pulled money out of the Total Return Fund for 15 months in a row, according to S&P Capital IQ.
Morningstar, a fund rating firm, put all of Pimco’s funds under review on Friday, and financial analysts scurried to assess the impact of Gross’s departure on Pimco’s business.
A report from Bernstein Research estimated that Pimco could lose as much as 30 per cent of the money in its funds as investors follow Gross to Janus, or put their money elsewhere. “We would expect a good deal of Pimco clients switching to Janus, simply attracted by the long track record of Bill Gross,” wrote the analysts led by London-based Thomas Seidl.
Other large bond managers, including BlackRock and Legg Mason, would also likely benefits from Gross’s move, said Daniel Fannon at Jefferies.