Pimco trustee assails exec’s salary
A longtime trustee for Newport Beach’s $1.9-trillion Pimco funds lashed out at the reported $200-million annual salary of Bill Gross, the billionaire bond guru who co-founded the giant money manager in 1971 and remains its chief investment officer.
“You could hire 2,000 schoolteachers for that money,” said William J. Popejoy, a former financial executive who has been a Pacific Investment Management Co. trustee for 23 years. “I don’t know what Bill should be paid, but $200 million is not appropriate.”
The remarks, in an interview with The Times, are the latest challenge to Gross, 69, whose reputation as the world’s savviest bond investor was tarnished recently by disappointing results at Pimco’s core investment vehicle, the Total Return Fund, which Gross personally manages.
The Total Return Fund, with $237 billion in assets, had previously outperformed comparable bond funds for many years, prompting Morningstar Inc. to name Gross the fixed-income manager of the decade in 2010.
But the fund did so poorly in 2011 that Gross apologized to investors. Last year it lost 1.92%, trailing more than 70% of its peers in its worst annual performance since 1994.
At a time when all fixed-income funds have been suffering, Pimco has seen its investors, mainly institutions such as pension funds, pull back on their investments. Its total assets dropped below $2 trillion in the fourth quarter of last year, to $1.91 trillion as of Dec. 31.
The company was shaken in January by the abrupt departure of its chief executive, Mohamed A. El-Erian, Gross’ heir apparent, who had held the title of co-chief investment officer with Gross.
That crack in Pimco’s formidable facade deepened last month when the Wall Street Journal painted an ugly portrait of Gross’ management style, including takes of him publicly dressing down key employees and discouraging them from speaking to him or making eye contact.
The article said he and El-Erian had clashed in front of more than a dozen colleagues, with El-Erian complaining he had to clean up messes created by Gross. Gross, in turn, belittled El-Erian and compared himself to Secretariat, the Triple Crown thoroughbred racehorse.
“I don’t know if Secretariat made $200 million a year,” Popejoy said.
He described Gross’ recent performance as “mediocre” and characterized the description of his management style as “bullying, if what I read is true.”
Popejoy emphasized that he was not speaking on behalf of the other trustees.
Gross is estimated by Forbes magazine to be worth $2.3 billion. His $200-million-a-year compensation was first reported in 2012 by the New York Times, although Popejoy said he hadn’t seen that figure until this year. El-Erian was reported to be earning about $100 million a year.
Neither Gross nor El-Erian responded to emailed requests for comment.
Popejoy said Allianz SE — the German financial services giant that bought Pimco from Gross and other owners in 2000 — should investigate Gross’ conduct and consider reining in his salary and management style.
A U.S. spokeswoman for Allianz did not immediately respond to emails and phone calls.
Pimco spokesman Daniel I. Tarman issued a brief statement that sidestepped the intensifying imbroglio.
“Pimco greatly respects the candid views of the Funds’ independent trustees over many years,” the statement said. “We remain focused on delivering value to our fund shareholders and building upon our long-term record of success.”
Popejoy, 75, is among five independent trustees who oversee 88 Pimco funds on behalf of investors, and heads the board’s governance committee.
A onetime union shop steward, he became the first president of mortgage finance giant Freddie Mac. He later held executive roles at a series of high-profile financial firms controlled by such major entrepreneurs and investors as Mark Taper, David Murdock and Robert M. Bass.
He took half a year off as a Pimco trustee in 1995, when Orange County — then bankrupted by ill-advised investments — hired him as an emergency chief executive to restore stability.
The Pimco trustees’ duties include negotiating fund management contracts with Pimco, having its results audited and tracking the performance of the funds and their management fees. Their oversight does not extend to how Pimco’s executives are compensated, and Popejoy said it would be presumptuous for him to call on them or Pimco investors to join his criticism.
He made it clear, though, that he was unhappy with Pimco’s handling of the situation. Popejoy said the independent board members learned about the clashes between Gross and El-Erian only by reading about them. They were not informed by the two Pimco executives who also serve on the board, Douglas Hodge and Brent Harris.
Popejoy said he finds it “worrisome” if Gross indeed treats employees as the article described. “You just can’t treat people that way and expect things to be OK,” he said. “You have to treat people with respect.”
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