By Kirsten Grind And Michael Calia
Legendary bond investor Bill Gross has left Pacific Investment
Management Co., the firm he founded in 1971, following a year of
heavy outflows from his flagship bond fund and a fight with his
former chief executive and heir apparent.
Pimco, a unit of German insurer Allianz SE, was getting ready to
fire Mr. Gross just before he resigned, according to people
familiar with the matter. The move was driven by Pimco, not by
Allianz, these people said, and comes as tensions had bubbled up at
the firm in recent weeks.
Mr. Gross will depart Pimco for a position at Janus Capital
Group Inc., where he will manage a newly created bond fund.
The news marks a huge shift in the mutual-fund industry, where
the 70-year-old Mr. Gross widely was viewed as one of the most
influential bond investors of all time. He built Pimco into a $2
trillion bond powerhouse, and his $222 billion Pimco Total Return
fund is the largest bond mutual fund in the world. Mr. Gross was
the face of the company, often appearing on television to give his
views of the bond market and other news.
But Pimco has suffered as Mr. Gross has seen investors pull more
than $65 billion from his fund since May 2013 amid spotty
performance.
After former Chief Executive Mohamed El-Erian abruptly left
Pimco earlier this year, Mr. Gross replaced him with six deputy
chief investment officers, but the move has failed to stem outflows
across the whole company. Earlier this week, the Journal reported
that the Securities and Exchange Commission is investigating the
$3.6 billion Pimco Total Return ETF for artificially boosting
returns.
Mr. Gross's behavior grew increasingly erratic in the wake of
Mr. El-Erian's departure, according to people familiar with the
matter. Several months ago, the Pimco executive committee issued a
warning to Mr. Gross that he needed to change his behavior, the
people said.
Mr. Gross's behavior didn't change, these people said, as he
yelled repeatedly at members of the committee and others.
Among the incidents that bothered Pimco executives was a lengthy
phone call in which Mr. Gross raised his voice repeatedly to two
Wall Street Journal reporters writing an article about the turmoil
within the firm, the people said. Several Pimco deputy chief
investment officers told the firm they would resign if Mr. Gross
didn't leave.
In recent weeks, the executive committee began making succession
plans in case Mr. Gross left the firm or was forced to leave, the
people said. Mr. Gross learned of those plans and approached Janus
about joining that firm, according to a person familiar with the
matter. More recently, Pimco executives had decided to ask Mr.
Gross to leave the company.
Mr. Gross also met face to face with Jeffrey Gundlach, chief
executive of investment firm DoubleLine Capital LP, to discuss
joining that firm before opting to join Janus, Mr. Gundlach said in
an interview.
Mr. Gross discussed a potential move to Los Angeles-based
DoubleLine at several points over the past two weeks. He called Mr.
Gundlach last week, and they met face-to-face the next day at the
Southern California home of Mr. Gundlach, another bond-fund manager
whose views on the path of interest rates is closely watched.
Mr. Gross left Mr. Gundlach a voice mail Thursday night with his
decision, Mr. Gundlach said.
Pimco CEO Douglas Hodge said in a statement Friday, "While we
are grateful for everything Bill contributed to building our firm
and delivering value to Pimco's clients, over the course of this
year it became increasingly clear that the firm's leadership and
Bill have fundamental differences about how to take Pimco
forward."
Mr. El-Erian won't return to Pimco, people familiar with the
matter said. Deputy Chief Investment Officer Dan Ivascyn is likely
to take over portfolio management at Pimco, they said, although it
is unclear if he will take over Pimco Total Return Management.
Mr. Gross will manage a newly created Janus Global Unconstrained
Bond Fund and related strategies at the Denver-based mutual fund
firm, Janus said in a news release Friday morning. The move is an
abrupt change for Mr. Gross, who will be moving to a much smaller
and less prestigious firm than the one he left. Janus's CEO,
Richard Weil, joined Janus from Pimco in 2010, where he had been
chief operating officer.
Mr. Gross is slated to begin working at Janus effective Monday
and will start managing the bond fund and strategies fund Oct. 6.
He will be based in Janus's new office in Newport Beach, Calif.,
which is also where Pimco is located. He will join Myron Scholes
and other members of the firm's team that focuses on global asset
allocation.
In a statement released by Janus, Mr. Gross said, "I look
forward to returning my full focus to the fixed income markets and
investing, giving up many of the complexities that go with managing
a large, complicated organization. I chose Janus as my next home
because of my long standing relationship with and respect for CEO
Dick Weil and my desire to get back to spending the bulk of my day
managing client assets."
Mr. Gross later issued a separate statement. "It was not without
great thought and deliberation over quite some time that I decided
to begin this next chapter," he said. "But now, after 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. Janus is the right fit at the right time in my
career--and my life."
In the news release about the hiring of Mr. Gross, Mr. Weil
said, "His involvement provides Janus a unique opportunity to offer
strategies and products that are highly complementary to those
already managed by our credit-based fixed income team."
Investors sold Treasury bonds on the news of Mr. Gross leaving
Pimco. The yield on the 10-year benchmark Treasury note was
hovering at around 2.506% immediately before the disclosure that
Mr. Gross was leaving the hundreds of billions of dollars in
Treasurys and other debt he oversaw at Pimco to go to Janus.
Within a half-hour of the statement, the 10-year yield jumped to
2.546%. While a move of 0.04 percentage point may not seem like
much in that period, it was perceptible enough in the $12 trillion
Treasury market that several traders and strategists attributed it
to the news about Mr. Gross. Bond yields move in the opposite
direction of prices.
The 10-year yield was recently 2.540%.
Shares of Janus reached a 4 1/2 -year high earlier Friday and
recently were up 33% to $14.77. Meanwhile, shares of Allianz,
Pimco's owner, fell 6.2% in trading in Germany and dragged down the
DAX index.
Morningstar said on its website that it has placed all the
Pimco-rated funds under review following the resignation of Mr.
Gross. The firm said the "depth of resources" at Pimco "means
investors have time to reassess their options."
Katy Burne and Ulrike Dauer contributed to this article.
Write to Kirsten Grind at kirsten.grind@wsj.com and Michael
Calia at michael.calia@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires