Bill Gross, the embattled head of Pimco, has promised to give his portfolio managers more freedom to express dissent, as he faces mounting questions and criticism from investors, analysts and even a member of his own board of trustees.
Morningstar, the powerful mutual fund research firm whose recommendations are widely followed by retail investors, expressed concern over management turmoil at the $1.9tn bond firm, despite meeting what it called a “contemplative” Mr Gross this week.
Institutional clients and investment consultants have added Pimco to their “watch lists” of potentially troubled managers since the sudden resignation of Mr Gross’s co-chief investment officer and heir apparent, Mohamed El-Erian, in January.
Mr El-Erian’s departure was followed by headlines about infighting between the two men and about the work culture under Mr Gross, leaving Pimco fighting to defend itself in meetings with worried clients.
Eric Jacobson, Morningstar analyst, said Mr El-Erian’s departure followed those of other Pimco “senior statesmen”, including former managing director Paul McCulley, who left in 2010, and Chris Dialynas, a portfolio manager who is taking a sabbatical, and expressed concern that a slate of six newly appointed deputy chief investment officers may not be a sufficient counterweight to Mr Gross.
“Mr Gross seems very contemplative about mistakes he may have made in shaping that atmosphere in the past,” Mr Jacobson said after meetings at Pimco.
“He has speculated there may have been a lot more silence in the room when he and Mohamed were dominating the [investment] committee, because members of the group were anxious about taking positions that might upset one of them or the other.”
The disagreements with Mr El-Erian came at the same time as the performance of Mr Gross’s flagship Total Return Fund fell behind rivals last summer. With bond prices threatening to fall, investors have withdrawn money for each of the last 10 months, reducing assets by more than $46bn to $236bn.
Adding to Mr Gross’s woes, a member of the Total Return Fund’s board of trustees, William Popejoy, used an interview with the LA Times to criticise his $200m salary, his handling of the executive turmoil and reported management style. “You just can’t treat people that way and expect things to be OK,” Mr Lovejoy said.
Mr El-Erian’s departure prompted the Florida State Board of Administration (SBA), one of the largest pension funds in the US, to put Pimco on a watch list of managers about which it had concerns. Several smaller pension funds have done the same, and investment consultants have urged trustees to monitor their relationship with the firm.
“It is quite prudent any time there is senior management change that there be heightened observation,” said Ash Williams, chief investment officer of the SBA, which has $1.7bn with Pimco. “Being on a watch list does not mean imminent severance.”
Calpers, the California state retirement fund, stopped short of adding the manager to a watch list but said: “We have tremendous respect for the staff at Pimco. That being said, we are monitoring the issue and will keep our board aware of any changes.”
Pimco did not immediately respond to a request for comment, but has said in the past that it has been in regular contact with clients since the management changes. It has also taken out large newspaper ads introducing its deputy CIOs, which it calls “a constellation of stars”.
Mr Gross, who turns 70 next month, built Pimco into one of the largest fund managers in the world and earned the nickname “the bond king” through a three-decade bull run in fixed income markets.