Jump to content

Bill Gross Leaving PIMCO


merkhet
 Share

Recommended Posts

I find it interesting that Allianz has lost over $4 billion in market capitalization today, while Janus has gained about $650 million.  Not that the market is efficient, but this doesn't make sense.  If Gross managed 220 billion it is priced as if all of it is leaving (2% of AUM for fixed income is a reasonable rule of thumb).  Not very likely.  And if the outflows did occur it is assuming only 1/7 of it follows Bill Gross.  That doesn't make sense to me either.  If the assets are there based on Gross's track record why would 6/7 of the assets that leave go elsewhere???  So either Janus is not pricing in all the benefits or Allianz is taking an excessive beating.

Link to comment
Share on other sites

I find it interesting that Allianz has lost over $4 billion in market capitalization today, while Janus has gained about $650 million.  Not that the market is efficient, but this doesn't make sense.  If Gross managed 220 billion it is priced as if all of it is leaving (2% of AUM for fixed income is a reasonable rule of thumb).  Not very likely.  And if the outflows did occur it is assuming only 1/7 of it follows Bill Gross.  That doesn't make sense to me either.  If the assets are there based on Gross's track record why would 6/7 of the assets that leave go elsewhere???  So either Janus is not pricing in all the benefits or Allianz is taking an excessive beating.

 

That is what I am trying to figure out.  I think of it like this:

 

Allianz was at 52 week highs trading at 1.2 book value.  The market price of Allianz was likely not inexpensive enough to take this risk into account.  Had Bill Gross been hit by a bus, you would probably lose a lot less than $4 billion of market cap given the team he has behind him and the ability to better retain those assets.  Easier to explain the departure of Bill Gross in that situation.

 

Janus on the other hand has to deal with a new risk.  Bill Gross is already quite older and the amount of tenure at Janus could be fairly limited.  Also, if he was unable to create the right culture in the bond team at PIMCO, why would he at Janus?  I would probably pay a smaller multiple for this since there are some serious exit valuation problems.

 

All in all, the transition is going to be messy which will result in outflows to other bond firms such as LM (which is up today).  If anything this could be a major opportuity for other firms to highlight their bond expertise and grab assets after Bill Gross has left a bad taste in their mouthes.

 

So I don't think the market value gap between Allianz and Janus is that strange.  But if Bill Gross can do a good job at Janus and live another 10 years or so, the stock is probably very undervalued.

Link to comment
Share on other sites

I find it interesting that Allianz has lost over $4 billion in market capitalization today, while Janus has gained about $650 million.  Not that the market is efficient, but this doesn't make sense.  If Gross managed 220 billion it is priced as if all of it is leaving (2% of AUM for fixed income is a reasonable rule of thumb).  Not very likely.  And if the outflows did occur it is assuming only 1/7 of it follows Bill Gross.  That doesn't make sense to me either.  If the assets are there based on Gross's track record why would 6/7 of the assets that leave go elsewhere???  So either Janus is not pricing in all the benefits or Allianz is taking an excessive beating.

 

There's also a factor that more of the revenue stream will likely accrue to Gross personally, to the extent that he can draw away the assets he had managed at PIMCO.

 

But I think the bigger reality is that tons of assets will go elsewhere - if you're an institution with a PIMCO managed separate account, you want to flee the uncertainty of PIMCO but you also can't credibly take the money to an upstart manager with little real track record in fixed income, even if it has a big name attached. So a lot of that money will wind up with other established credit managers ... BLK has added more than $1bn in market cap today.

Link to comment
Share on other sites

    Sept. 26 (Bloomberg) -- Jeffrey Gundlach of DoubleLine

Capital LP said he met with Bill Gross early last week, before

the Pacific Investment Management Co. co-founder announced his

departure for Janus Capital Group Inc.

    The two money managers discussed employment possibilities

for Gross at Los Angeles-based DoubleLine, Gundlach said today

in a telephone interview. Gundlach co-founded DoubleLine in

December 2009 after being ousted from TCW Group Inc. amid a

dispute.

    Gross, 70, and until today manager of the $222 billion

Pimco Total Return fund, will join Janus Capital to oversee a

new bond fund, according to a statement today from Denver-based

Janus.

 

 

 

Son of a gun... would have been awesome for my shares of Oaktree.  Oh well...

Link to comment
Share on other sites

I find it interesting that Allianz has lost over $4 billion in market capitalization today, while Janus has gained about $650 million.  Not that the market is efficient, but this doesn't make sense.  If Gross managed 220 billion it is priced as if all of it is leaving (2% of AUM for fixed income is a reasonable rule of thumb).  Not very likely.  And if the outflows did occur it is assuming only 1/7 of it follows Bill Gross.  That doesn't make sense to me either.  If the assets are there based on Gross's track record why would 6/7 of the assets that leave go elsewhere???  So either Janus is not pricing in all the benefits or Allianz is taking an excessive beating.

 

There's also a factor that more of the revenue stream will likely accrue to Gross personally, to the extent that he can draw away the assets he had managed at PIMCO.

 

But I think the bigger reality is that tons of assets will go elsewhere - if you're an institution with a PIMCO managed separate account, you want to flee the uncertainty of PIMCO but you also can't credibly take the money to an upstart manager with little real track record in fixed income, even if it has a big name attached. So a lot of that money will wind up with other established credit managers ... BLK has added more than $1bn in market cap today.

 

So is Gross' departure giving justification to move assets elsewhere?  To me, if someone had assets at Pimco because of Gross wouldn't they most likely move them to Janus since Gross is going there??  Why move them to LM, BEN or BLK etc.??  If someone thought those other firms/managers were better wouldn't they have already chosen them.  In other words, Gross switches firms so he drops from 1st choice to 3rd or 4th.  Why??

 

Janus share price move is implying that about $50 billion will follow if I assume 45bp in fees and 16% net profit margins.

Link to comment
Share on other sites

I find it interesting that Allianz has lost over $4 billion in market capitalization today, while Janus has gained about $650 million.  Not that the market is efficient, but this doesn't make sense.  If Gross managed 220 billion it is priced as if all of it is leaving (2% of AUM for fixed income is a reasonable rule of thumb).  Not very likely.  And if the outflows did occur it is assuming only 1/7 of it follows Bill Gross.  That doesn't make sense to me either.  If the assets are there based on Gross's track record why would 6/7 of the assets that leave go elsewhere???  So either Janus is not pricing in all the benefits or Allianz is taking an excessive beating.

 

There's also a factor that more of the revenue stream will likely accrue to Gross personally, to the extent that he can draw away the assets he had managed at PIMCO.

 

But I think the bigger reality is that tons of assets will go elsewhere - if you're an institution with a PIMCO managed separate account, you want to flee the uncertainty of PIMCO but you also can't credibly take the money to an upstart manager with little real track record in fixed income, even if it has a big name attached. So a lot of that money will wind up with other established credit managers ... BLK has added more than $1bn in market cap today.

 

So is Gross' departure giving justification to move assets elsewhere?  To me, if someone had assets at Pimco because of Gross wouldn't they most likely move them to Janus since Gross is going there??  Why move them to LM, BEN or BLK etc.??  If someone thought those other firms/managers were better wouldn't they have already chosen them.  In other words, Gross switches firms so he drops from 1st choice to 3rd or 4th.  Why??

 

Janus share price move is implying that about $50 billion will follow if I assume 45bp in fees and 16% net profit margins.

 

From my experience in asset management, it does not really work this way even if an asset manager likes Bill Gross and put his clients in PTTRX.

 

A lot of money invested in PIMCO is through mutual fund platforms where they pick the funds based on the track record of that fund (not the manager) and they would have a difficult time putting a Janus fund with Bill Gross running it on the platform.  The more likely outcome is they start getting calls from Legg Mason, Blackrock, Doubleline, etc who have funds with great track records without the Bill Gross drama.  This is really paving the way for emerging bond managers at those bond shops.

 

Not very much of the PTTRX fund are from individual investors who are in it because they trust Bill Gross.  In fact there should be some massive shifts in 401k plans as a result of this management change.  All kinds of fidiciary duty issues with the plan sponsors now that there is a material shift in strategy/manager and there are other good bond funds out there. 

 

If you add up the market cap gains of those winners and the market cap losses of Allianz, I suspect you even out pretty closely.

Link to comment
Share on other sites

Well one big issue is that Janus is not a Bond shop. It is an ok equity shop. So, they would have to open many new funds. It takes time to ramp up a mutual fund shop. In the meantime people nervous about PIMCO are going to move to Black Rock, Doubleline, Fidelity, Vangaurd, etc. Remember that 401k, pensions usually have contracts and lots of admin work. So these will take time to move. But they will.  Once they move, they wont be  in a hurry to change again. I dont think Janus will be a big winner but Allianz surely is a big loser.

Link to comment
Share on other sites

Well one big issue is that Janus is not a Bond shop. It is an ok equity shop. So, they would have to open many new funds. Total return, HY, Treasury, etc. It takes time to ramp up a mutual fund shop. In the meantime people nervous about PIMCO are going to move to Black Rock, Doubleline, Fidelity, Vangaurd, etc. Remember that 401k, pensions usually have contracts and lots of admin work. So these will take time to move. But they will.  Once they move, they wont be  in a hurry to change again. I dont think Janus will be a big winner but Allianz surely is a big loser.

 

This is exactly right.  It is not as simple as "we have this genius bond manager running this fund and oh by the way he is already 70 years old and we hope he doesn't croak soon."  These fund platforms require a lot of due diligence, wining and dining, and the company infrastructure to handle all of this.

 

I am honestly surprised Bill Gross did not do what Gundlach did: approach Howard Marks to help fund the operations, provide compliance and back office support, and take a stake in the new bond shop.  He left a lot on the table by not doing something like this.

Link to comment
Share on other sites

Janus has $30 billion in bond AUM, including an existing fund that Gross will step into.  I agree that is nowhere near all the funds that Pimco offered under Gross. 

 

We must have a different understanding of fund platforms.  I don't see discount brokers needing to be wined and dined to add another Janus fund to the platform.  Their customers will want it and if they don't provide it customers may invest directly with Janus.  You also seem to be saying that most investors won't follow him to Janus but they would have been more likely if he had started from scratch.  That seems contradictory.

 

This will be interesting to see who benefits from AUM leaving Allianz. 

Link to comment
Share on other sites

Janus has $30 billion in bond AUM, including an existing fund that Gross will step into.  I agree that is nowhere near all the funds that Pimco offered under Gross. 

 

We must have a different understanding of fund platforms.  I don't see discount brokers needing to be wined and dined to add another Janus fund to the platform.  Their customers will want it and if they don't provide it customers may invest directly with Janus.  You also seem to be saying that most investors won't follow him to Janus but they would have been more likely if he had started from scratch.  That seems contradictory.

 

This will be interesting to see who benefits from AUM leaving Allianz.

 

Discount brokers will be able to add the new PIMCO fund no problem.  But do you know how difficult it is to raise over $50 billion dollars in a mutual fund?  It is freaking hard even for the best managers. 

 

Gundlach has one of the best track records out there and he pulled in about $35 billion over two years.  By starting up his shop with Oaktree he adds credibility as a long-term focus (not just moving into a new fund company since there is nothing to prevent Bill Gross from jumping to another company if the culture clashes) and retains more value for himself since there is slippage as AUM leaves for other places.  If he ends up with $100 billion of AUM in the next several years, it would be much more beneficial to have it under his own ownership and culture to prevent PIMCO 2.0.

 

I am familiar with the sales force at Janus.  Let me just say it is weak and the sales force is stretched out across a very wide territory.  I was never particularly impressed by them.  The new Janus fund can be added to some discount brokerage platforms but how hard is it to raise over $100 billion from retail investors one trade at a time?  There was "only" a total of $250 billion in the PIMCO total return fund and it was considered a foundation of most fixed-income allocations in MASSIVE retirement plans and wirehouse fund platforms. 

 

Sorry if I seemed as being contradictory.  I was more saying that from Bill Gross' perspective, he could have done exactly what Gundlach did and create much more value for himself than taking over some funds at another company.  That in itself sort of tells me what the current mindset of Bill Gross is.  He became a declawed, domesticated house cat at PIMCO and he is not looking to stay at the top of his game.  Performance at his fund the past several years seems to agree with this as well.

 

At the same time he will have an easier time running in the tens of billions than hundreds of billions.  He is currently a down and out manager and I wouldn't bet against him.  I just don't see how that much AUM or value flows through into Janus that easily.  I don't know how that relates to the current share price of JNS since it may be cheap enough to reflect the efforts of pulling in that AUM.

Link to comment
Share on other sites

That would be nuts. 2 legends in the bond world in one shop.

 

they cant both be Bond Kings. Bond Emperor?

 

The problem with having two chiefs is that they both think that they are Chiefs. So that probably wouldn't be as good an outcome as you believe, especially if those stories about Bill Gross are true.

Link to comment
Share on other sites

Pretty impressive [Edit: FAKE] email from Bill Gross... And the Greek tragedy continues  :(

 

http://www.bloombergview.com/articles/2014-10-03/bill-gross-s-investor-outlook-on-palace-coups

 

I can add colours to the chameleon,

 

Change shapes with Proteus for advantages,

 

And set the murderous Machiavel to school.

 

-- Henry VI, Part III

 

Dear Friends, Colleagues and Co-workers,

 

For the past 43 years, Pacific Investment Management Co. has been my home, as well as my pride and joy. With great sadness, I must bid her adieu, not because I want to leave, but because I must. It is the natural order of things for all seasons to change; for the next generation must be given its chance. A new epoch is upon us. Ashes to ashes . . . .

 

All those reasons -- plus truth be told, an imminent palace coup -- meant it was time for me to go.

 

Before I depart, however, I offer you this final Investment Outlook, my last IO for you to consider. No cats, no "Man in the Mirror," just a few thoughts for you to reflect upon as the next era -- a newer new normal -- begins.

 

I co-founded PIMCO in 1971, starting with a mere $12 million in assets. Who could have imagined what the company would become during the ensuing 43 years? After four decades as founder, fund manager and mostly as CIO, I guided this firm to managing more than $1.97 trillion in client assets. When I sold the 70 percent stake not held by Pacific Life Insurance Co. to Allianz SE in 2000, the company had a value of $4.7 billion.

 

Not too shabby a track record. I daresay I must have gotten one or two things right during that period.

 

Not that you would know it by the recent press coverage, nor by the whispers in the hallways of Pimco. The immense wealth I helped to create for my colleagues, partners and clients over all that time meant nothing, once Machiavelli’s stratagems were put into play.

 

There is a standard sequence of events for all insurrections, and this one was no different. It included the favored tactics: A public character assassination, the quiet intimations that I had lost it (erratic behavior, dark glasses at a presentation, an elegy to my cat Bob). Add to that a break with a trusted associate, which implied something nefarious about that behavior (How did Mohamed manage to resign from Pimco, yet stay employed at Allianz? I couldn't pull that one off).

 

These hints and allegations were easy to make, especially given my natural eccentricities. But I put this question to you: Was I so different from any other California billionaire? The TM and yoga, the occasional head stand, a well-deserved bark at a wayward underling -- these and all manner of behavior that no one ever thought about before suddenly took on all sorts of dark implications once the coup was under way. Never underestimate the impact of a whisper campaign.

 

On ne voit bien qu'avec le cœur. L'essentiel est invisible pour les yeux. Translation: "One sees clearly only with the heart. What is essential is invisible to the eye."

 

I must point out that these idiosyncrasies have been on display for decades, and were never looked on askance. At least, not while the alpha was piling up and the assets under management were rolling in.

 

But alas, that chapter has come to an end; it is now time to look forward. The future of Pimco is now in your hands, a dozen or so managing directors. You represent the future of the firm. You are the new BSDs, and to you I put the following questions:

 

• Some Pimco funds are generating what I call “perceived” alpha. This seems to be nothing more than “leverage-enhanced” beta. Discuss.

 

• I cautioned against the wholesale expansion into equities, as fixed income was the asset class upon which the firm made its bones, built its reputation and acquired almost all of its AUM.

 

How is that equity thing going? And whatever happened to that Kashkari kid? Seemed like a nice fellow.

 

• Many of you seemed to resent my annual compensation (Mohamed's too). I suspect you believed that a few hundred million dollars would be better placed in your collective hands.

 

Query: Is splitting up the big dogs’ comp among yourselves worth the fallout of a smaller asset base in the years to come? Is that in the best interests of the firm?

 

• Speaking of assets: Who among you is going to be the firm’s rainmaker? Which of you can raise a trillion dollars? How about a $100 billion? How will you compensate the people who raise that money? Best of luck managing the resentment for whatever compensation system you arrange.

 

• Many of you are in your 30s, 40s and 50s. How long do you plan to work here, and how much are you willing to sacrifice? I was married to this place, and gave it my all.

 

What are you prepared to give?

 

• Now that you have your new-found authority, what are your plans for it?

 

As for me, I am off to my newer new normal. There will always be a special place in my heart for Pimco. I wish all of you all of the luck in the world, as I leave you in charge of her. She’s your baby now. Try not to screw it up too badly.

 

William H. Gross

 

Managing Director, Retired

Link to comment
Share on other sites

Guest wellmont

I believe that's called satire? but I was not an English major.

 

key sentence: On his way out of Pimco, Gross penned a heartfelt farewell letter to his former colleagues. But so great was his haste that he never hit “send.”

Link to comment
Share on other sites

Wow..incredible email, I love it. 

 

I remember reading an interview years ago that detailed Gross' strategy.  It was brilliant.  People dissed his usage of derivatives for the risk it introduced.  But if I remember correctly he ran his fund in a similar way to a bank.  He sold insurance contracts on his underlying bonds in a way that he created a net interest spread that almost guaranteed he'd outperform.

 

The fact that the guy was able to grow a fund to support such asset size alone is incredible. 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...