Legendary investor Bill Gross warned potential clients Thursday that global headwinds are strong as he begins his "second life," having left bond-trading giant Pacific Investment Management Co. to run a fund at smaller rival Janus Capital Group.
Tamping down expectations, Gross said public pension funds and investors saving for college and retirement alike will find goals "difficult to achieve" amid slow growth, wage stagnation and aging populations in developed countries still burdened by heavy debt.
Record low interest rates have buoyed the value not only of bonds but of stocks and real estate -- but that eventually must end, he said.
"Returns are going to be lower than the double digits of the old days," said Gross, whose forecasts as Pimco's chief investment officer were followed around the world.
"It's too bad for Bill Gross, too bad for Janus, and too bad for investors," he said. "Bye-bye to those days."
The remarks came during a teleconference with Janus Chief Executive Richard Weil, who worked with Gross at Pimco for 15 years and lauded his "well-earned reputation as simply the best in this business."
On the call, and in a companion letter to Janus investors released this morning, Gross gingerly acknowledged the stunning circumstances of his exit from Pimco last month, when he abruptly announced he had left the firm he had helped found four decades earlier.
The move followed months of clashes with other Pimco executives and growing investor disastisfaction over the performance of the massive Total Return Fund that Gross had headed.
"Had there been a reasonable way to continue there, I would have stayed to my last breath," Gross wrote. "But slowly and with great hesitation, I came to understand that it was time for me to leave."
On the call, Gross simply said: "It's been a rough few weeks."
Gross, 70, predicted "smooth sailing" was ahead for him at Janus following the "rough seas" of his clashes with other executives at Pimco, leading to his abrupt departure on Sept. 26.
"I expect my second life at Janus Capital to be a simpler sequel to my first life at Pimco," he said.
Weil has set up a small office in Newport Beach to house Gross' operation, which starts with just five employees. Two blocks away in the Newport Center complex, Pimco's headquarters is the sole tenant of a 20-story office building.
With nearly $2 trillion in assets under management, Pimco is more than 10 times the size of Denver-based Janus. Gross will manage the Janus Global Unconstrained Bond Fund, which had $79 million in assets as of Sept. 30, compared with about $200 billion at Pimco's flagship Total Return Fund.
Gross expressed confidence in the technical support to be provided by the team of credit researchers and traders at other bond funds Janus already maintains.
He said that though size has its advantages, the new fund will allow him to operate with more flexibility and less scrutiny than he experienced at Pimco, which made such enormous trades that they were impossible to miss.
"The fact that the Street doesn't follow your trail -- the Hansel and Gretel bread crumbs to the house -- is a big advantage," he said.
Gross, who spent 43 years at Pimco, once beat the returns of rival bond traders so frequently that investment researcher Morningstar Inc. proclaimed him the fund manager of the decade in 2010.
But his performance has been uneven in recent years. His biggest misstep came in 2011, when he dumped his holdings of U.S. Treasury securities, only to see their value rise when investors stocked up on U.S. government debt as a hedge against losses elsewhere.
Bond investors took notice of the stumbles and of turmoil in Pimco's executive suites, including the sudden departure in January of Mohamed El-Erian, Pimco's chief executive, who had been regarded as the replacement in waiting for the aging Gross.
Pimco Total Return, the world's largest mutual fund, already had seen investors yank about $70 billion -- a quarter of all the money once managed by the fund -- by the time Gross abruptly departed on Sept. 26.
His departure promoted a three-day outflow of an additional $20 billion, but only $66.4 million of that wound up in the Janus unconstrained fund, according to Morningstar.
Gross said he will avoid investing much in longer-term bonds at his new fund in order to keep from being clobbered when interest rates eventually rise off their record lows.
Opportunities include bonds from Mexico, which Gross said are attractive because the country has half the debt load of the United States and offers higher interest rates in a rapidly developing economy driven by the oil and gas industry.
Sumit Desai, an analyst for Morningstar, said the call left plenty of unanswered questions, particularly how someone of Gross' stature would operate within Janus' already well defined management structure.