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PIMCO – Uneasy Lies The Head

The crown prince is abdicating, and there’s nobody left to run the show except the king himself. And yes, the monarch would rather have stayed out of the public’s eye for a little longer, given the choice.

So what is Bill Gross, the heavyweight founder of the world’s biggest bond fund provider, Allianz’s PIMCO, going to do now that his heir apparent, cheif executive Mohamed al-Erian, has announced his imminent departure? The world waits with bated breath.

Super-manager Gross, who turns 70 this year, has easily deserved his fame over the years. Since starting Pimco in 1971, his extraordinary gift for macro timing has made PIMCO by far the world’s biggest and most successful fixed interest operator, with around $240 billion currently in his flagship Total Return fund and an estimated $2 trillion in total AUM. Always finely attuned to the key risk issues in the market, Gross was one of the first to warn in 2006 of the impending dangers of credit default swaps, which duly wrecked the banking system and much more besides. Many regarded him as near-infallible.

Two Strikes And You’re In Real Trouble

But Mr Gross has twice been wrong-footed by the Federal Reserve in the last three years alone, and both times it was disastrous. In late 2011 he was forced to issue a public apology after telling his investors to bail out of bonds because of the imminent ending of quantitative easing. (It didn’t happen, bonds soared instead of collapsing, and his fund was left high and dry.)

2012 brought a welcome surge of returning money from an ever-forgiving flock of faithful. But last year Gross goofed again by calling the QE taper all wrong, and by the end of 2013 his Total Return fund had lost nearly 2% – which took a little explaining in a year when the S&P had gained 30%. Morningstar says that the Total Return fund suffered €8.4 billion of outflows in the first 11 months of last year. And that was just in Europe….

Mr Erian, aged 55, has let it be known that he’s quitting the reputed $100 million annual salary at PIMCO for a less stressful life without the killer working hours. He leaves the job in mid-March. Any offers?

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