NEW YORK, N.Y. - The biggest star in the bond market shocked the financial world Friday by leaving the huge money management firm he has led for four decades and joining a much smaller rival.
Bill Gross, who co-founded the investment giant Pimco in 1971 and runs its $222 billion Total Return Fund, said he would join Janus Capital Group. The prospect that investors would follow the guru-like fund manager and pull their money out of Pimco sent the stocks of several rival investment companies soaring.
Janus jumped 43 per cent. Allianz, the German company that owns Pimco, dropped 6 per cent.
"Many people invested in Pimco's Total Return know Bill Gross, and they want his expertise," said Todd Rosenbluth, director of fund research at S&P Capital IQ. "Money will leave Pimco. It's just a question of how much."
Pimco moved quickly to appoint a successor. Daniel Ivascyn, who has been with Pimco since 1998, was named late Friday as group chief investment officer.
Gross has trounced rivals for years with deft moves in and out of bonds, earning the title "Bond King" and attracting hundreds of billions of dollars into Pacific Investment Management Co. But lately his performance has lagged that of many rivals and his management style has raised eyebrows.
Gross will develop bond investment strategies at Janus and run a recently launched fund called the Unconstrained Bond Fund from a new office in Newport Beach, California. He starts at Janus, which is based in Denver, on Monday.
Gross writes monthly commentaries on markets that are widely quoted, and his utterances on business TV shows can move markets.
But for all his star power, Pimco's flagship Total Return hasn't fared well recently. The fund lost 2.2 per cent last year, according to Pimco, its first loss in more than a decade. It's done better this year, returning 4.1 per cent through August. Still, that is one point less than the average for similar bond funds.
In addition to lacklustre results, investors have been rattled by reports of a regulatory probe into the way Pimco has been valuing bonds in a smaller fund and by management turmoil at the company. In January, Gross' heir apparent, Mohamed El-Erian, abruptly resigned. Investors have pulled money out of the Total Return Fund for 15 months in a row, according to S&P Capital IQ.
Morningstar, a fund rating firm, put all of Pimco's funds under review on Friday, and financial analysts scurried to assess the impact of Gross's departure on Pimco's business.
A report from Bernstein Research estimated that Pimco could lose as much as 30 per cent of the money in its funds as investors follow Gross to Janus, or put their money elsewhere. "We would expect a good deal of Pimco clients switching to Janus, simply attracted by the long track record of Bill Gross," wrote the analysts led by London-based Thomas Seidl.
Other large bond managers, including BlackRock and Legg Mason, would also likely benefits from Gross's move, said Daniel Fannon at Jefferies.
Rosenbluth of S&P Capital IQ said that he expected star bond performers elsewhere to also attract investor money, among them Jeffrey Gundlach, who runs DoubleLine's Total Return Bond fund. It has returned 5.5 per cent in the eight months through August, according to Morningstar.
In announcing Gross' move, Pimco CEO Douglas Hodge alluded to tension between Gross and top managers. In the past year, "it became increasingly clear that the firm's leadership and Bill have fundamental differences about how to take Pimco forward," Hodge wrote. He added that the company has a "deep bench of talent" and expects a "seamless leadership transition."
For his part, Gross noted in a statement he was looking forward to not having to face "many of the complexities that go with managing a large, complicated organization."
Gross was one of the founders of Pimco and helped build the Newport Beach, California-based investment company into one of the world's largest bond managers. Today, the company manages almost $2 trillion in assets.
Gross and El-Erian, co-chief investment officer before his departure, helped steer the company through the tumult of the financial crisis. The two helped develop Pimco's concept of the "new normal," a widely cited idea that economies will grow more slowly after the crisis and big investment returns will be hard to come by.
Snagging Gross is a "big coup" for Janus, according to a note to investors by Greggory Warren, a senior analyst at Morningstar. Warren said it would allow Janus to attract money to its fixed income funds, which currently total $31.4 billion, a fraction of Pimco's.
Janus stock soared $4.78 to $15.89. Legg Mason rose $2.09, or 4 per cent, to $50.77 and BlackRock increased $13.55, or 4 per cent, to $335.07.