About a year ago – September 26th, 2014 to be specific – Bill Gross left PIMCO.
Here is the original announcement, HERE.
Gross, who was a founder and the lead portfolio manager for the PIMCO Total Return fund, had been signaling some dissatisfaction with his previous employer. As the lead PM for the largest bond fund in the world, his departure was big news for individuals and institutions with money in the fund. Beyond the direct effects, the departure of Bill Gross was a harbinger of an even broader change in the industry: the changeover from the individual “Rock-Star” management styles to team focused products, with multiple levels of error checking, shared responsibilities, and fewer single points of failure.
We wrote about this changeover in our weekly blog post following the announcement, HERE.
It looks like I missed another element of how personal volatility can affect the business decisions. Now, a full year after Bill Gross’ split from PIMCO, he is suing his previous employer for $200 million dollars. Make no mistake: Bill Gross is a multi-billionaire and doesn’t need the money. This is a lawsuit made from spite and resentment. At the very least, it’s a distraction. At worst, the lawsuit, which calls PIMCO “improper, dishonest, and unethical” is potentially damaging to their professional standing. I am sure that Allianz (the parent company of PIMCO) wants nothing more than to minimize their press or, at least, keep the story on their investment returns rather than the drama surrounding core business operations.
When filling out a due diligence report on an investment product, “manager risk” generally refers to the inherent bias of an investment manager to make mistakes, deviate from their investment mandate, or underperform their benchmark. It looks like we have to add the possibility of a future lawsuit under the heading – “manager risk”.
There remain a few key “Rock-Star” portfolio managers out there and most, as far as we know, continue to have amiable relationships with their employers. Still, I expect Bill Gross’s lawsuit to encourage other investment managers’ plans to convert their core business operations to team based approaches to reduce the probability of a future blowup like this.