Column: Bond guru Bill Gross retires from Janus, ending a short-lived second act

The question sure to be asked about the retirement of legendary bond trader Bill Gross from Janus Henderson after a short four-year stint is: Did he jump or was he pushed?

That’s because the Denver-based mutual fund firm hasn’t made much of a secret of its disappointment with his performance lately. In August, Richard Weil, the Janus CEO, said on CBNC that Gross, 74, had “been wrong and wrong badly in the short term. And he’s accountable and we’re accountable for that.”

Weil added, “Nobody is less happy about [Gross’] investment performance than he is.” Although he bowed to Gross’ reputation as “still one of the greatest investors of our lifetime,” his statement was a rare rebuke of an investment guru whose very word had been gospel to fixed-income investors since his founding of Newport Beach asset management fund Pimco in 1971.

At its peak in March 2013, Gross’ flagship, the Pimco Total Return Fund, held $289.8 billion in assets. By September 2014, when he and Pimco staged an acrimonious divorce, it had fallen to $221.6 billion. (“Total return” signifies that the fund reinvests its dividend distributions and interest.)

Janus Henderson plainly thought lightning could strike twice when they lured Gross to its investment team. But its Global Unconstrained Bond Fund, which he managed, never came close to the Pimco fund’s size or performance. By August, when Weil unburdened himself of his opinion on Gross, the assets under Gross’ management had fallen to $1.25 billion, having suffered customer redemptions for five straight months, according to Bloomberg News. It’s now under $1 billion, according to Morningstar.

Another irritant may have been Gross’ personality. The eccentricities of big-time moneymakers can be overlooked; when the money starts flowing in the wrong direction, they come to the fore.

In 2014, Gross squabbled with Mohamed El-Erian, the economist who served as Pimco’s co-chief executive and co-chief investment officer with Gross and had been regarded as Gross’ heir-presumptive. El-Erian left Pimco, and stories leaked out about Gross’ imperious behavior — traders were forbidden to speak to him or even make eye contact on the trading floor, the Wall Street Journal reported. He brooked no discussion or debate about his trading strategies and became hostile to rising talents on the floor.

Similar traits were on display in Gross’ 2017 divorce from his second wife, Sue, and its aftermath. The divorce itself was enormously contentious — although their son is grown, there were conflicts over their multiple homes, cars, cats and artwork. (Gross also has two grown children from his first marriage.) But after their divorce decree was issued in October, relations between Bill and Sue Gross seemed to get worse.

As we wrote last year, accusations of spying and surveillance have flowed in both directions, as have allegations of deliberately destroyed property, malicious damage at their homes — one of which is valued at $40 million — and sexual affairs.

Gross’ professional reputation was based on a run of success at Pimco that was rare, if not unique, among active investment managers. His record made him perhaps the best-known investment figure on the West Coast. The Ohio native had come west after being hired as a bond analyst at the Newport Beach-based life insurance company Pacific Mutual in 1971. That year he formed Pacific Investment Management Co., or PIMCO, as a unit of the insurance company, then split it off as an independent firm in 1985.

To a certain extent, Gross’ success at the Total Return Fund was an artifact of good timing. Since the fund’s launch in May 1987, the yield on the 10-year U.S. Treasury bond had fallen from 8.61% to 2.52% and bond prices rose commensurately.

Still, Gross significantly outperformed the fund’s benchmark, the Barclays US Aggregate bond index. From the end of 1987 through September 2014, according to fund follower Mark Hulbert, the Total Return Fund outperformed an unmanaged bond index by 1.14 percentage points per year, annualized. The success made him a billionaire. The division of his fortune with his ex-wife reduced his net worth to $1.5 billion, low enough to drop him off the Forbes 400 list of America’s wealthiest people in 2018.

But at Janus, his fund underperformed the index by 2.1 percentage points, annualized.

Gross’ old fund has outperformed its benchmark index in two of the four complete years since his departure, and has outperformed so far this year. His Janus fund, however, has underperformed its index every year except 2016 since his move. Both funds are benchmarked against the Bloomberg Barclays U.S. Aggregate Bond Index.

Gross’ record at Janus was marred in part by bets he made on German government bonds — specifically, that the gap between their interest rates and those of U.S. treasuries would narrow.

The bets were characteristic of Gross’ habit of staking huge sums on his expectations, but uncharacteristic in that they were wrong. It wasn’t the first misfire in his career — in 2015, he predicted the imminent end to the bull market in financial assets; more than three years later, the bull is still roaring.

His bad bets notwithstanding, Gross’ recent record may also have been affected by statistical ebb and flow: According to Hulbert, while Gross’ record in his four years at Janus is worse than his 43 years at Pimco, the difference may not be large enough to be statistically significant.

In any case, a spokesman for Gross says of his departure from Janus: “This was Bill’s decision, no one ‘pushed.’”

Gross said in a statement issued via Janus that he would be retiring to spend more time managing his personal charity.

“I’ve had a wonderful ride for over 40 years in my career — trying at all times to put client interests first while inventing and reinventing active bond management along the way,” he said. “I learned early on that without a client, there can be no franchise. I’m off — leaving this port for another destination with high hopes, sunny skies and smooth seas!”

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