A Winter of Discontent

The story is almost Shakespearian.

Global Market Update - Richard 3

Source: Shakespeare Online

A charismatic leader arises. He demonstrates genuine ability. But he can’t maintain his position. His increasingly erratic behavior alienates his followers and they abandon him. Eventually, in a final conflict, the leader is put down.

The plot from Richard III? Yes, but also the story of Bill Gross. Gross has been known as the Bond King. He founded his firm four decades ago, and found his money-management approach wildly successful: take a medium-term view to avoid being whipsawed by the market’s gyrations, and sell options on interest rates by holding large positions in mortgage-backed securities.

Over time, Gross’s flagship Total Return Fund beat 96% of its peers. Investors flocked to it. At its peak, it held almost $300 billion—15% of PIMCO’s $2 trillion in assets. Gross became the face of the bond market. But when you become so big, you become the market. It’s increasingly difficult to outperform. Some key miscalculations led to poor returns, and investors started to leave.

This—and the resignation of a key colleague—put increasing pressure on Gross. Articles circulated that outlined internal tensions at the firm. He became obsessed with finding—and firing—the source of the stories: “Mr. X.” But other managers prevented him. Key subordinates resigned—one to run a food truck business. Gross gave a speech at a conference wearing sunglasses because the “future’s so bright,” even while he was berating co-workers in public.

Such a tragic tale has only one ending. A group of executives told PIMCO’s owners that they would quit if Gross stayed on. The writing was on the wall. Rather than stay and be fired, Gross left for a much smaller rival firm. Billions in account balances have followed him.

Money management is a team sport. No one—however talented—can do this job alone. Long-term success means finding—and keeping—colleagues you can trust. No one is an island. Even the King.


Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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