By Kirsten Grind And Gregory Zuckerman
After Bill Gross abruptly quit Pacific Investment Management
Co., the bond-fund giant he co-founded, in September to join a much
smaller rival, the big question was how much money would follow
him.
His new firm, Janus Capital Group Inc., subsequently disclosed
that investors poured about $1.1 billion into Mr. Gross's new fund
in October and November. That money was critical, because it helped
push the Janus Global Unconstrained Bond fund past $1 billion in
assets under management, a key threshold for large investors,
according to industry experts. Despite Mr. Gross's status as a star
fund manager, some large pension funds and their consultants have
said they couldn't consider a fund with less than $1 billion in
assets.
But what Janus didn't tell investors was that, in a previously
unreported development, a majority of the money came from a single
Southern California brokerage office--the same office where one of
Mr. Gross's personal financial advisers works, according to
industry executives who have viewed confidential brokerage
data.
The Morgan Stanley wealth-management office in La Jolla, Calif.,
routed more than $700 million to Mr. Gross's Janus fund in October
and November, according to people who viewed brokerage-firm
fund-asset data from Albridge, a data firm owned by Bank of New
York Mellon Corp. The transfers accounted for more than 60% of the
money raised by Mr. Gross in the first few months after he left
Pimco.
It isn't clear whether the money originated from one investor or
one financial adviser, or from more than one, although Mr. Gross
acknowledges at least some of the money came from him. While it
isn't unusual for a manager to invest in his own fund, industry
executives say it is extremely rare for one firm or office to
account for such a large percentage of a prominent fund's incoming
cash.
A spokesman for Denver-based Janus said the firm doesn't comment
on specific fund shareholders and their investments "as a matter of
policy and out of respect for the privacy of the firms we serve and
their mutual fund investors." The spokesman also wouldn't comment
on how much of the fund is made up of Mr. Gross's money. A
spokeswoman for Morgan Stanley declined to comment. A spokesman for
Albridge said, "Any data generated from Albridge Analytics' system
is confidential and public use of the data is neither authorized
nor permitted."
After questions from The Wall Street Journal, Janus Capital on
Wednesday tweeted a comment attributed to Mr. Gross:
Janus declined to comment further.
Mr. Gross, 70 years old, is a billionaire who earned more than
$200 million a year before he left Pimco, the giant money manager
he helped start four decades ago and then abruptly left in
September. His departure shocked the investment community and
triggered a scrum for tens of billions of dollars, as rivals tried
to poach Pimco's clients. Investors pulled $150 billion from Pimco
last year, most of it in the months after Mr. Gross's departure. In
the latest example, New York City's five pension funds withdrew
nearly $5 billion from Pimco, a spokesman for New York City
Comptroller Scott Stringer said Wednesday.
Investors in Janus shares have bet his arrival would help the
beleaguered money manager--which has suffered from years of
outflows due to poor performance--attract investors. Janus's stock
jumped 43% on Sept. 26, 2014, the day Mr. Gross's hire was
announced, the biggest one-day gain in the company's history. Janus
shares have pulled back since then but are still up 11% since he
took over the fund in early October, and the firm saw more inflows
in October across all of its mutual funds than it has in any single
month since 2007, according to data tracker Morningstar Inc.
"Obviously, he's off to a great start raising a lot of attention
and assets," Dick Weil, Janus's chief executive, recently said of
Mr. Gross.
The La Jolla office of Morgan Stanley is in a small, affluent
community just north of San Diego and about 80 miles south of Mr.
Gross's Janus office in Newport Beach. The La Jolla office is where
one of Mr. Gross's own financial advisers, Robert Inbody, works,
according to people familiar with his role. Mr. Inbody referred all
queries to Morgan Stanley.
Mr. Gross doesn't live in La Jolla, but it isn't unusual for
wealthy individuals to have multiple financial advisers in
different locations, say brokers.
Albridge provides data from the four largest financial firms
selling mutual funds to investors: Bank of America Merrill Lynch,
UBS AG, Wells Fargo & Co. and Morgan Stanley. The data,
covering the majority of mutual-fund sales, is provided to clients
who pay a fee to subscribe.
In October, according to the Albridge data viewed by industry
executives, more than $300 million of total investor inflows into
Mr. Gross's Janus fund came from the Morgan Stanley office in La
Jolla. According to Morningstar, the fund saw a total of about $360
million of inflows that month, meaning 87% of all new money that
came into the fund in Mr. Gross's first full month on the job
originated from that office. In November, the office contributed
about $400 million out of $770 million in total inflows, according
to the people who viewed the Albridge data and Morningstar.
When Mr. Gross took over the fund at Janus in early October, it
had just $12 million in assets under management following its
launch in May 2014, according to Morningstar. The firm was expected
to report new asset totals for December on Wednesday. The fund
follows a different strategy than Mr. Gross adhered to while
running the Total Return fund at Pimco, allowing him to invest in a
variety of bonds and other securities. The fund has lost 1.1% since
Mr. Gross took over Oct. 6 through Tuesday, ranking it in the 52nd
percentile in its category, according to Morningstar.
Janus rivals such as Vanguard Group and BlackRock Inc. appear to
have taken a much bigger share of the outflows from Pimco's mutual
funds, which totaled about $150 billion in 2014, according to
Morningstar's most recent data. Vanguard, for example, saw $10.3
billion flow into its Total Bond Market Index fund in October, the
fund's highest monthly inflow on record.
Mr. Gross got a boost in November when George Soros's Soros Fund
Management made a $500 million investment, although that amount is
run through a separate account at Janus that isn't part of Mr.
Gross's mutual fund.
Fund managers are required by a Securities and Exchange
Commission regulation to report the amount, within a range, that
they invest in mutual funds that they manage. Morningstar shows no
investment from Mr. Gross in the fund, though it wasn't clear
whether that was due to a potential lag in reporting schedules.
Janus declined to comment on its regulatory reporting.
When Mr. Gross ran Pimco's flagship Total Return fund, he
regularly invested his own money, according to people familiar with
the matter. Before he left Pimco, Mr. Gross held an investment of
$1 million or more in the Total Return fund, according to
Morningstar.
Mr. Inbody of Morgan Stanley is one of the firm's biggest
producers in Southern California, according to people familiar with
the matter. His LinkedIn profile says he has been a managing
director at the firm since 1971.
Write to Kirsten Grind at kirsten.grind@wsj.com and Gregory
Zuckerman at gregory.zuckerman@wsj.com
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