Janus buys stake in Kapstream Capital, gaining help for Bill Gross
Bill Gross — the deposed “bond king,” formerly of Pacific Investment Management Co. in Newport Beach — acknowledged recently that he was disappointed with his performance for his new employer, Janus Capital Group, where his investments have lost money.
“I look at it every day and say, ‘This has got to change,’” Gross told The Times in an interview last month
On Wednesday, Janus signed up some help for Gross — a former underling of his at Pimco, who will now co-manage the Janus Global Unconstrained Bond Fund, a freewheeling operation that Gross has headed since his abrupt departure from Pimco last September.
The manager, Kumar Palghat, arrives in a package with a fresh acquisition for Denver-based Janus, which purchased a 51% stake in Kapstream Capital, a Sydney, Australia, investment firm that Palghat co-founded nearly a decade ago.
Like Gross’ operation, Kapstream is an unconstrained bond investor that can buy all types of fixed-income investments and may make short investments, betting that bonds will decline in value.
The deal includes a cash payment of $85 million from Janus to Kapstream and an option for Janus to purchase the remaining 49% of the Australian firm. Additional financial details are not being disclosed, the company said.
Janus Chief Executive Dick Weil, Gross and Palghat were not available for interviews, a Janus spokeswoman said.
“I look forward to working with my old colleague,” Gross said in a statement issued by Janus.
Kapstream had opened its own satellite office two years ago in Newport Beach. It has more than three times as many assets under management as Gross oversees for Janus — $6.6 billion compared with $2.1 billion.
By contrast with the vast resources once available to Gross at Pimco — which has 2,400 employees in 12 countries — the combined enterprises will have 15 employees.
Gross’ flagship Total Return Fund at Pimco was the largest bond fund in the world until April, when massive outflows of investor money left it No. 2 behind a Vanguard Group index fund. Even after investors withdrew $103 billion in 2014 and an additional $38 billion in 2015, it still had $107.3 billion under management at the end of May, according to fund-research firm Morningstar Inc.
At the peak of his renown, Gross, 71, became the world’s best-known bond geek, with prominent appearances in financial publications and television shows. Stories described his early success as a card-counting blackjack player banned from Las Vegas casinos and described his fascination with yoga and stamp collecting.
He left Pimco after a spate of clashes with other top brass at the firm.
Although Gross remains primary portfolio manager of Janus’ Global Unconstrained Bond fund, Palghat will support him as co-portfolio manager. The fund had lost 0.8% as of June 29 since Gross took over, compared with a gain of 0.18% for an industry benchmark rate, according to Morningstar. That left Gross’ results behind 65% of those at peer funds.
Some analysts said they didn’t see the appointment of a co-manager at Gross’ fund as a slight. Rather, they noted that the fund was in need of more personnel to help the famed money manager.
“I don’t think it knocks him down a peg,” said Sumit Desai, senior fixed-income analyst at Morningstar.
“Gross is going from Pimco, where he was essentially drinking from a water hose of information, to Janus, wherehe was working almost autonomously without the resources that he once had,” Desai said.
Jeff Tjornehoj, fixed-income analyst at the Lipper research firm, said there also “has to be a succession angle” to Janus’ acquisition and Palghat’s new role.
“I don’t have any idea of when Bill Gross plans on retiring, but you need a plan when you have a star manager and they have to think ahead,” Tjornehoj said.
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