Guru watch: the gloves come off at Pimco

A spat worthy of a soap opera has rocked the staid world of fund management. In one corner is ‘bond king’ Bill Gross who co-founded Pacific Investment Management Co (Pimco) in 1971 and built it into the world’s biggest bond-fund manager.

In the other is his former CEO Mohamed El-Erian who left abruptly earlier this year. It seems their relationship deteriorated last summer, with El-Erian irked by Gross’s dictatorial management style. “I have a 41-year track record of investing excellence,” The Wall Street Journal’s Gregory Zuckerman quotes Gross telling El-Erian. “What do you have?” “I’m tired of cleaning up your s**t,” came the reply.

Gross appears to have wanted more say over strategy. “If only Mohamed would let me, I could run all the $2 trillion myself,” he allegedly told a trader. Gross has accused El-Erian of trying to undermine him and appeared to suggest that he had been monitoring his former colleague’s phone calls (a claim later denied by Pimco), notes Reuters.

Pimco’s recent performance has been poor. Last summer, the prospect of Fed tapering dented bond prices. Gross’s fund posted a negative return for the first time since 1999. Investors yanked $41bn out of his fund, a record exodus in dollar terms, even though Gross pleaded with them to stay.

“A series of bad calls” in recent years has tarnished Gross’s halo, says Jeremy Warner on Telegraph.co.uk. In 2010, he described UK gilts as “resting on a bed of nitroglycerine”, overlooking that quantitative easing would prop them up. Gilt prices rose and following his advice would have resulted in “a huge loss”.

Now it’s Pimco that is “sitting on the bed of nitroglycerine”.


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