Will loyal investors swamp Bill Gross’s new venture?

Global Market Update - Bonds A Go-Go - Bill Gross

Source: Marketswiki

On Friday Bill Gross rocked the investing world by leaving PIMCO, the two-trillion dollar asset management firm he founded, and going to work for a competitor. Gross is one of the best-known investors in the world. With his folksy charm and colorful commentary, Gross made investing in bonds cool, which is pretty tough. Bonds are inherently boring, or should be. If everything goes right, you get your money back; if something exciting happens, you might get pennies on the dollar.

But ever since co-CIO Mohammed El-Erian left back in January, Gross had been behaving erratically. It wasn’t just his quirky management style, giving demerits to employees who make too much eye contact, or suggesting top managers make large contributions to PIMCO’s charitable foundation. No, he had been yelling at fellow executives and berating the firm’s management committee. It was as if he were daring them to fire him.

Which they had planned to do over the weekend, if Gross hadn’t resigned first. Gross will now manage a much smaller bond fund over at Janus Capital, and he won’t have executive responsibilities. That could work, especially if he can implement his strategy profitably on a smaller scale. Successful funds can become their own market when they grow too large. Small can be beautiful.

The drama is almost Shakespearian: an ageing monarch suffers a setback and becomes unreliable. Trusted deputies are alienated; palace intrigues intensify. The king is deposed. In hindsight, it’s not so surprising: Gross wants to manage money, not a firm. But it may not be so simple. If billions of dollars follow him, he’ll find it especially hard to beat the market.

It’s the curse of celebrity. Having used his personality to attract assets, those assets—while providing revenues—could now swamp his new venture. Gross may learn what Shakespeare’s King Lear did: there is no longer any place that is truly safe.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
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