Tuesday, September 30, 2014

Setting Up Shop at Janus Isn’t Okay: William Gross Leaves PIMCO

Setting Up Shop at Janus Isn’t Okay: William Gross Leaves PIMCO

Pacific Investment Management Company (PIMCO) is scrambling to set up meetings with concerned institutional investors and conference calls to try to stanch the redemptions of mutual fund shareholders.  Meanwhile, William Gross is already into his second day as an employee of Janus Capital Group.  There’s something wrong with this picture, and I think the following statement by Mr. Gross captures it:

[A]fter having spent considerable time serving in senior management, it is a time for me to reduce executive and people management responsibilities at a larger firm and focus on the pure aspects of portfolio management at a smaller one.[1]

Mr. Gross seems to be telling us that his management duties at PIMCO interfered with ability to manage the $223 billion Total Return Fund, roughly $80 billion in 16 other funds, and another $153 billion in 128 accounts.[2]  Under Mr. Gross’s leadership, PIMCO had been experiencing significant turmoil for some time.  According to various press reports, various maneuvers were underway to terminate Mr. Gross’s employment. 



His inability to focus over the past year or two isn’t surprising.    However, this state of affairs is completely inexcusable.  Mr. Gross’s primary duty should have been to his investors spread across all of the offerings in which he was listed as their portfolio manager.  While PIMCO was all too happy to earn billions of dollars of fees based on Mr. Gross’s investment reputation, Mr. Gross and his colleagues seem to have devoted too much of their time and energy to office intrigue and their own financial well-being.

In many other professions, Mr. Gross wouldn’t be allowed to set up shop over the weekend.  If Mr. Gross were an airline pilot or doctor, his conduct and performance would probably subject him to some level of scrutiny before he’d be allowed to open for business again.  He’s leaving a big mess behind at PIMCO that should be properly understood before investors trust him with their assets.   The stock market isn’t thinking about such niceties.  Janus’s stock was up 43% on Friday (it sold off 7.5% yesterday).   Investors are betting that Mr. Gross and Janus will be able to crank up their marketing machine and reel in assets.  The market is usually right about such things.  Nonetheless, if I were an investor in Mr. Gross’s former products or a prospective client for his new offerings, I’d be steering clear.


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