IPE editor Liam Kennedy looks back to a simpler time for beleaguered asset manager
When I interviewed Bill Gross and Mohamed El-Erian at PIMCO’s headquarters in Newport Beach in late April 2009, the world was still in deep trauma. The Lehman collapse was only just over six months past and the equity market was only just turning (although this was not perceptible at the time).
El-Erian had just spoken at the Milken Global Conference, and I was to moderate a panel of leading US institutional investors, including the late Joe Dear of CalPERS and CalSTRS CIO Christopher Ailman, the next day. Dear had just started at CalPERS the previous month and joked that he could only make things get better, but investors were licking their wounds.
The views of Gross and El-Erian were much in demand. PIMCO had warned about the housing market already in March 2007 and was talking about a “stable disequilibrium” when Greenspan was talking up the “Goldilocks” economy. Gross was notably keen in our interview to emphasise PIMCO’s collegiate style of decision making and communication, something he was clearly comfortable with.
He was clearly less publicity hungry than some of his former PIMCO colleagues, preferring for many years to communicate with the investing public via regular letters, whose pithy and engaging style would become a trademark. In a glimpse into his personality, those letters, dating back to the 1970s, were collated as a coffee-table book, but Gross told me he had stopped it from being distributed too widely. In any case, it is safe to assume the book is probably no longer on display at PIMCO offices.
When he moved from the Midwest to California with his parents in the 1950s, little would a young Bill Gross have realised that his fortune would be made there – and in grand style. Following years spent as a professional gambler, the yet-to-be Bond King made his name as a bond analyst at Pacific Mutual, and it is a fair bet his first pay cheque was a tiny fraction of the $200m (€177.5m) settlement Gross is now seeking from his employer (and will donate to charity should he be successful).
As the firm grew, so did the bonuses, latterly with pool of $1.3bn, of which Gross was guaranteed 20%. Of course, rumours of PIMCO’s Croesus-style pay have been rife for many years, which has no doubt succeeded in attracting many a talented fund manager to the shores of Newport Beach.
As Gross and others explained over the years to outsiders, locating a bond fund management company in Southern California, far away from the fray of Wall Street, was a deliberate strategy. It was meant to allow fund managers to take a dispassionate view of markets and combine early morning starts with a beach lifestyle in the late afternoon when the New York dealing rooms had closed.
Aside from the back-stabbing allegations and eye-wateringly high remuneration that PIMCO executives enjoy, a few things stand out. One is that Jochen Faber, as the former chief executive and architect of Allianz Global Investors, seemingly intervened in Gross’s dispute with his colleagues alongside Allianz. Despite Faber’s attempt to place PIMCO under the Allianz Global Investors umbrella as the group’s bond specialist, PIMCO did not stay for long within that constellation and now sits as an autonomous, direct subsidiary of the Allianz Group.
I recall a real sense of elation in Munich in 2000 when Allianz acquired 70% of PIMCO for $3.3bn. Finally the sleepy, German-focused, third-party fund management business had the wind in its sails and was on course for global reach. The insurer also had access to world-class bond management capabilities, and PIMCO built up local capabilities in Germany to serve its parent.
When it next meets, the main board of Allianz might be forgiven for wondering what it has got itself entangled with. After all, investment management is meant to a straightforward business-diversification strategy for financial services companies. Yet the industry has rarely seen such high drama. And in this climate of transparency and relative frugality, those institutional clients that have not yet pulled their assets from PIMCO might wonder whether now is not high time.
Liam Kennedy is editor and editorial director of IPE