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Tuesday, 24 October 2017

​When the gods descend

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  • Peters 475px June 2014

Peters: Bill Gross’s move to Janus shows the vanity of an old man.

I MUST CONFESS to being mildly peeved that the God of Bonds, Bill Gross, decided to cross the River Styx shortly after I had completed and submitted my weekly column just over a week ago. Although I thought about it, I opted not to start all over again. My next dilemma was whether I wanted, a week later, to provide the 4,638th opinion on his move to Hades. Well, here is the answer.

Having been the senior institutional bond salesman covering the German insurance sector for my shop, the vast portfolios of Allianz in Munich were very much part of my target area. Thus, when the insurer (somewhat to everyone’s surprise) announced that it had acquired a majority stake in the mighty PIMCO, I developed a huge interest in the goings-on.

Of course I knew of Bill Gross’s larger-than-life reputation but I was mightily cautious. I had already watched on as UBS had acquired Brinson Partners and saw how Gary Brinson had taken over the reins and had very quickly stamped on any independent thinking by money managers at UBS Asset Management – it all looked a bit like one of Terry Gilliam’s big foot animations for Monty Python’s Flying Circus. As one senior portfolio manager at UBS in Zurich put it at the time: “We’re all ‘GIs’ now … that is ‘Gary’s Implementers’.”

IT WAS PRETTY clear from the outset that California boys would be arriving in Munich in short order and that, if any sucking up was to be done, it had to be towards these chaps. And did I ever do some sucking up? What rapidly became evident was that this was a highly disciplined army. No room for holistic decisions and for blowing smoke up selected orifices. No personal favours. No more “my trader is short a few of these, can you let me have some, please?” There was quite clearly a new sheriff in town.

Over the following months and years I was to learn a lot about the way in which PIMCO brains were wired. One of my closest contacts who had been seconded from Newport Beach to Germany was sent to Frankfurt to review the loan book of Dresdner Bank after it had also been acquired by Allianz. I am of course too discreet to report what he told me of his findings but that in itself should speak volumes.

I think it is fair to say that he was wondering whether the Germans had ever heard of due diligence and if so which trainee had been charged with doing it. The cosy world of Deutschland AG was now history and I think it is fair to say that PIMCO took a starring role in its dismantling.

WHETHER BILL GROSS was a supreme visionary who always led from the front or whether he was merely a small-minded control freak is a matter of opinion. But if every dog has his day, Gross had more than his fair share.

The way in which funds are flowing out of PIMCO at the moment would have one believe that investors saw Gross as a man-mountain who, as the great dictator, had surrounded himself with second-rate yes-men who are hopeless without him. No Gross, no performance. I think this is a very great shame and it does a huge disservice to the quality people who are still there. He did, after all, leave under a cloud of his making, not of theirs.

Stories abounded – whether true or false I know not – about his raised desk, his in-tray and out-tray and how he saw, reviewed and signed off on every trade idea which was generated within the firm. He might not have exactly prompted the personality cult which surrounded him but he clearly did little to push against it.

We all loved to hate Gross in the way in which we hate all those people in the market who have done so much better than we have with what we all believe to be only marginally more talent. We loved to hate his Investment Outlook which we all devoured and then blithely declared that he was only taking his own book.

Bill Gross became the acceptable face of the bond markets

LOVE OR HATE PIMCO with its swagger and, some might say, arrogance – not many can get away with leaving a fill-or-kill for 20% of a new issue and win – it has acted as something of a lighthouse for bonds in a world obsessed with equities.

I still find myself trying to explain to private wealth people that a bond trading at 102 is not showing a profit in the same way that a share does and that selling it does nothing for anyone other than to lose a better-than-market coupon; they just don’t get it. Bill Gross became the acceptable face of the bond markets. If people listened when E F Hutton talked (remember that one?), then they listened a lot closer when William H Gross had something to say. They might not have understood what he said but they followed him and gave him their money.

WHEN IT WAS announced that Mr Gross had left PIMCO and would start at Janus on Monday, my first thought was “poor little mite; he can’t afford to take a week’s holiday between jobs”. But he’s 70-years-old and worth, supposedly, in the region of US$2bn. What is he trying to prove? Is Mark Spitz retraining for the Olympic 100 metre freestyle? Is Jackie Stewart trying to fit himself back into a Grand Prix car? Is Joe Montana looking for one more touchdown pass? Gross has nothing to prove other than, perhaps, that he is just as normal and just as fallible as the rest of us. Does he – or we – really need that?

He could have elegantly stepped down, done a bit of writing, done a bit of teaching, done some TV and been the star turn at Davos. Instead he appears to want to prove that he has “still got it”. To me, that is sad. When the gods descend from Mount Olympus and take human form they lose much of their lustre. Moving to Janus and watching investment dollars shift from his old company to his new one looks like little more than the vanity of an old man.

He gains nothing from succeeding – he has enough money already – and loses everything, reputation-wise, if he fails. It is said that one should wish never to meet one’s heroes. There was a time when I’d have given my eye-teeth for the opportunity to dine with the great Bill Gross. I am no longer so sure.

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