Gross prods El-Erian to explain reason for Pimco exit

Bond King challenges former heir apparent to explain departure

Apr 15, 2014 @ 12:01 am

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(Bloomberg News)

More than two months after Pacific Investment Management Co.'s former chief executive Mohamed El-Erian announced his resignation from the world's biggest bond manager, Bill Gross is still looking for a reason.

Mr. Gross, 69, speaking in an interview with Bloomberg Television's Trish Regan, said Mr. El-Erian's departure is still a mystery for him and a disappointment for the firm, which manages the industry's biggest bond fund. He said he may have been premature in anointing Mr. El-Erian as his sole successor.

“He simply said he was not the man to take the company forward,” Mr. Gross, who manages the $232 billion Total Return Fund (PTTAX), said in the interview. “I would say, 'Come on, Mohamed, tell us why'"

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The co-founder of Pimco is challenging Mr. El-Erian to speak up as he seeks to counter media reports that have painted a picture of Mr. Gross as an autocratic boss. Mr. El-Erian, who was also co-chief investment officer along with Mr. Gross, said Jan. 21 he would leave Pimco in mid-March, and his departure was followed by reports of tension between the two men. Mr. Gross lashed out at Mr. El-Erian, 55, in a June meeting as performance at his biggest fund stumbled and withdrawals continued, two people familiar with the matter said this year.

Reports of Mr. Gross as a dictator have come from former Pimco employees who have an ax to grind, the fund manager said. While he hasn't been as inclusive and open to discussion as he could have been, he's said he's done things correctly to get assets at Pimco to about $2 trillion.

PERFORMANCE STUMBLES

“El-Erian is gone and he's not coming back and why he left or what you might have said or done doesn't matter,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. “It's time for Bill to focus on what he does for a living, which is manage bond portfolios.”

Mr. Gross, who has among the best track records over the long term, has stumbled in the past year after misreading the actions of the Federal Reserve and the direction of interest rates. Pimco Total Return declined 1.3% in the past year, trailing 89% of similarly managed funds, according to data compiled by Bloomberg. The fund suffered its 11th straight month of withdrawals in March, with clients pulling $3.1 billion, even as industrywide, investors returned to bond funds.

In an internal memo to employees in January, Mr. El-Erian said he was looking forward to something different and had no plans as of then. He plans to write a book about the rise and fall of central banks, a person familiar with the matter said on March 31. Mr. El-Erian declined to comment.

Mr. El-Erian may be limited in his ability to talk about the split with Pimco. It's not unusual for top executives to have severance packages that contain confidentiality agreements to give the company some control when employees leave, said Barry Scheer, director of the business law and litigation group at Parker Scheer, who wasn't talking about Pimco specifically. Those agreements may contain non-disparagement provisions that prohibit executives from saying anything about their former firms that may be perceived as damaging.

Mr. Gross reiterated during the interview that he will be at Pimco for a long time and looks to Dan Fuss, the 80-year-old bond manager at Loomis Sayles & Co., as a role model. When he does retire, one of the six deputy CIOs named after Mr. El-Erian's exit could be a potential heir, Mr. Gross said.

Mr. Gross said he had been asking himself in the past months whether the picture painted of him was true, and whether the image he has of himself was wrong. For the most part, he concluded, it was not.

“I look in the mirror, you know, and I like my hair. It's nice and thick,” Mr. Gross said. “But can it be changed, can it be a different style, can it be trimmed at a certain level? Of course it can, and that's what I'm trying to do.”

(Bloomberg News)

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