Bloomberg News Bill Gross, musing on his legacy in an April investment outlook, contended that the real test of his greatness as investor would be his ability to adapt to a new era of shrinking bond market returns.
Almost a year later, the bond king is stumbling.
Mr. Gross's largest fund, the $236 billion Pimco Total Return, has trailed peers for two of the past three calendar years. Clients pulled money from the world's largest bond fund for a 10th straight month in February even as investors tiptoed back into bonds. In the midst of this, the 69-year-old has been entangled in an ugly split from his former heir apparent Mohamed El-Erian, with allegations of phone surveillance and public humiliations, that has painted a picture of Mr. Gross as an autocratic leader struggling to maintain his composure.
The departure of Mr. El-Erian and other top executives in the past year has become a distraction at a critical time for Pacific Investment Management Co., the Newport Beach, Calif., firm he co-founded in 1971 and built into the world's largest fixed-income manager amid a three-decade rally in bonds. As rising interest rates worldwide have prompted investors to flee bond strategies over the past year, Mr. Gross's ability to improve returns is crucial for Pimco to reverse client redemptions.
“This clearly has the potential for being distracting,” said Michael Rosen, CIO at Angeles Investment Advisors LLC, a Santa Monica, Calif., consultant to institutions. “We prefer our portfolio managers to simply manage portfolios and not spend time thinking about what's being said in the media.”
EXAMINING LEGACY
Mr. Gross's Pimco Total Return Fund has declined 0.5% in the past year, trailing 76% of rivals and underperforming the Barclays U.S. Aggregate Index, according to data compiled by Bloomberg. This year, the fund has advanced 1.8%, ahead of 56% of peers.
Mr. Gross in April wrote an investment outlook where he examined his legacy as an investor, and said his returns and those of investors such as Warren Buffett, Dan Fuss and George Soros were helped by investing in an era of expanding credit that started in the early 1970s, when gold was de-linked from the dollar.
“Perhaps, however, it was the epoch that made the man as opposed to the man that made the epoch,” he wrote.
The billionaire's introspection came just as bond markets entered a period of turmoil after former Federal Reserve Chairman Ben S. Bernanke signaled in May that the central bank would start unwinding its unprecedented asset purchases. Investors responded by pulling a record $9.6 billion from Pimco Total Return in June, according to data from
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