Aging billionaire superstar vs. young up-and-comer. It couldn’t be a more classic battle, especially as literally billions of dollars hang in the balance.
The seemingly near-perfect history of Pimco, the money managing giant from Newport Beach, took a sharp turn in 2014. Two men, co-founder Bill Gross and new star Daniel Ivascyn, became locked in a high-profile corporate drama that radically changed Pimco’s bond management team and challenged its powerful position in the investment world.
In the end, Gross, 70, was left running a near-startup bond fund for a far-smaller Denver company out of offices just around the Fashion Island bend from his old Pimco seat of power. That’s where Ivascyn, 45, now heads the investment committee as Pimco moves toward a more team-oriented, congenial approach to its operations.
This battle is not simple banter for money management insiders. How Gross is able to run his new business, and how well Ivascyn – as the new face of Pimco – does is of critical importance to the Orange County economy.
Pimco was long associated with its star money manager, Gross, who helped start the company in 1971 and was for nearly four decades seen as one of the world’s top fixed-income experts. His trading talent and ability to attract dozens of equally skilled peers drew $2 trillion to this money machine. And he was well-compensated for his trading prowess, reportedly making $290 million last year, according to Bloomberg News.
But in recent years, Gross seemed to lose his magic touch. He mistakenly thought the U.S. economic recovery would not be as robust as it has proved to be. His bond bets, tied to this dour outlook, fared poorly.
His flagship fund, Pimco Total Return, fell from the top of the bond-fund performance charts where it had long stood. Dollars under management – and thus, Pimco’s road to profits – declined as a result.
As the pressure to perform mounted, Mohamed El-Erian, another star manager who’d risen to be Pimco’s co-investment chief with Gross as well as company CEO, unexpectedly quit early in 2014. Heavy friction with Gross was partly to blame.
The ensuing power struggles within the investment team challenged Pimco executives and its owner, German insurer Allianz, who seemingly did not know what to do with Gross.
This larger-than-life personality ran a demanding investment shop. Gross’ intensity, a desired trait for an ace trader, often served him poorly has a supervisor. Various media reports suggest that in the months before his departure he had loud, public squabbles with other members of Pimco’s investment leadership. He pushed to fire several top Pimco money managers – actions that may have, in fact, led to internal pressure to nudge him out.
As Pimco’s internal drama heated up over the summer, published reports suggest, Pimco’s executives and Gross were trying to create a happy ending for all. But tensions got out of hand.
In September, just hours before a key meeting between Gross and top Pimco executives – where, it was rumored, he was going to be pushed out – the legendary investor quit. He took a new job, running essentially a brand-new bond fund from Newport Beach for Janus Capital, based in Denver.
Pimco turned to Ivascyn to be its new investment leader. He had quietly created his own top-shelf trading reputation, earning $70 million last year, according to Bloomberg.
It won’t be easy following an industry icon, especially when that old leader will be competing against you head-to-head.
Ivascyn so far has taken a decidedly different tack. Most outwardly noticeable, he has kept a low public profile, laying out his investment philosophy with modest mentions in company newsletters or a handful of carefully scripted media interviews. Gross was known for his frequent, brash public commentary.
Ivascyn insists that Pimco has long been more than just a handful of superstar investors, and that its depth of talent – 250 money managers strong – will well service clients.
“The decisions regarding portfolio construction truly are the best ideas from this very deep team at Pimco,” Ivascyn told CNBC in September.
So far, Pimco has suffered stiff but not crippling investor exits. Pimco Total Return, which controlled $293 billion in assets at its peak in April 2013, shrank to $163 billion at the end of November. Overall, Pimco’s assets in traditional mutual funds were off $122 billion in 2014’s first 11 months. That still leaves $1.8 trillion to manage.
Gross, in his new job, has attracted roughly $1 billion in new money through November. Considering his global renown, that sum may be considered paltry. Of course, if he can once again produced eye-catching numbers you can bet investors will flock to his new fund.
It will be a fun battle to watch, and Pimco and Gross may be back in industry-topping mode. In November, Pimco Total Return’s performance placed it in the top 1 percent of all bond funds, according to fund-ranker Morningstar. Gross’ new fund beat all but 18 percent of its peers.
“I like to get up at 5:30 in the morning and make money for clients and compete against other money managers. That’s something that doesn’t go away,” Gross told Barron’s after he joined Janus. “I am obsessed with delivering value to investors and winning the game from a personal standpoint. Retiring at this point in my career just doesn’t suit me.”
Pimco employs 2,400-plus people at offices in Orange County as well around the world, and it has created some of the most lucrative jobs in the region. Gross and his wife, along with other former Pimco leaders, have been major givers to local charities. And other, younger ex-Pimco traders have started several locally based investment-company spinoffs.
For those reasons, the continued success of Pimco and the outcome of Gross’ new endeavor, while possibly delivering less drama, will have big implications for Orange County in coming months.
Correction: Daniel Ivascyn is Pimco’s chief investment officer. Because of a reporting error, his first name was incorrect in an earlier version of this story.
Contact the writer: 949-777-6727 or jlansner@ocregister.com
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