In what played out as somewhat of a soap opera, “Bond King” Bill Gross and his heir apparent Mohamed El-Erian both left Pacific Investment Management Company, LLC (PIMCO) in 2014. The drama prompted much speculation as to why anyone would step down from managing the largest mutual fund in the world.
Bill Gross’ Atypical Career Path
The career path of legendary bond investor Bill Gross is just as unique as his personality. Gross majored in psychology at Duke University, rather than finance or economics. He learned how to beat the system by playing blackjack in Las Vegas while living out of his car and turning $200 into $10,000 in a matter of months. He used his winnings to pay for his MBA in finance from UCLA and chose to manage bond portfolios at PIMCO rather than become a professional gambler.
Gross co-founded PIMCO in 1971. The firm’s Total Return Fund became the largest mutual fund in the world under his management, earning him the nickname “Bond King" as he controlled as much as $293 billion in assets.
El-Erian Early Career and First Departure From PIMCO
After spending his childhood in Egypt, El-Erian settled in the United States in 1983 as the deputy director of the International Monetary Fund (IMF) in Washington, D.C. He then became a managing director at Citigroup, Inc. (NYSE: C) in London before joining PIMCO in 1999 as a senior member of its portfolio management and investment strategy group. He left PIMCO in 2005 to become the president and CEO of Harvard Management Company, managing the university’s endowment and related accounts. He returned to PIMCO two years later as co-chief executive officer and co-chief investment officer along with Bill Gross.
Mohamed El-Erian: Investopedia Profile Part 2
Gross believes that successful long-term investments depend on the ability to formulate long-term outlooks and having properly structured portfolios. Using these foundations, Gross feels investors are forced to think long term, avoiding emotion and temptation, therefore reducing risk. Getting back to his gambling roots, Gross says, “Those who fail to recognize the structural elements of the investment equation asset allocation, diversification, risk-return measurements and investing costs will leave far more chips on the table for other more astute investors to scoop up than they could ever imagine."
El-Erian specializes in spotting trends amid the confusion of markets in motion. He often shouts the praises of cash, especially in uncertain markets, saying, “Investors have few spare tires left. Think of the image of a car on a bumpy road to an uncertain destination that has already used up its spare tire.” Like Gross, he too often warns against making emotional investment decisions.
El-Erian Leaves PIMCO Again
El-Erian left PIMCO for a second time in 2014 to become the chief economic adviser at PIMCO parent company Allianz SE (XETRA: ALV.DE), the world’s largest financial services group. Hired as Bill Gross’ heir apparent, El-Erian’s departure followed numerous reports regarding his contentious relationship with Gross, and many speculated the two simply could not work together.
Eventually, word leaked that the two had in fact been in many heated arguments in front of staffers in the months leading up to his departure. Gross reportedly was quoted as shouting at El-Erian, "I have a 41-year track record of investing excellence. What do you have?"
Apparently Gross also referred to himself as "Secretariat," the famous racehorse, and said he could run the entire fund without El-Erian.
Gross Leaves PIMCO for Janus
With El-Erian’s abrupt resignation from the $2 trillion asset manager, it seemed all decision-making power was headed back to Gross, who immediately tweeted, “Gross: PIMCO's fully engaged. Batteries 110% charged. I'm ready to go for another 40 years!”
After El-Erian left, PIMCO’s new senior managers turned against him and even considered firing the “Bond King.” Gross decided to avoid the humiliation of possibly being ousted from the firm he co-founded. Nine months after El-Erian left, Gross announced his departure from the firm he co-founded four decades earlier for much smaller Janus Capital Group, Inc (NYSE: JNS). He said the move was to reduce his executive responsibilities and focus on portfolio management.