Unstructured Finance

‘Bond King’ Gross speaks to 700 at Pimco client event in Big Apple

By Jennifer Ablan

Bill Gross did something last week he rarely does — venture from his Newport Beach, Calif. home to meet with investors twice. 

First in Chicago at the Morningstar Investment Conference where he made waves for donning sunglasses and joking he’d become “a 70-year-old version of Justin Bieber,” and then, the next day at a less-publicized event for 700 clients in New York City. 

The meetings are a sign that Gross, dubbed the market’s “Bond King,” is trying to make amends with investors and the media after a brutal first half of the year. 

Last Friday, Gross gave a keynote address and took some questions at Pimco’s annual investment summit in the Big Apple, which was the largest Pimco-hosted client event in its history with over 700 institutional investors and clients, Doug Hodge, ceo of Pacific Investment Management Co. told Reuters.
At Friday’s event, Hodge spoke reverentially about Gross, describing him in visionary language one might reserve for a great inventor or artist.
“Time after time, Bill has broken with conventional wisdom as he has seen opportunities where others have not, and he has been prepared to put it on the line, over and over again, and it has been this process of taking measured risk that has led to extraordinary long-term benefits to you, our clients,” Hodge said.
Gross is facing no shortage of investor attention.
Pimco’s flagship Total Return Fund, the world’s largest bond fund run by Gross with $229 billion in assets under management, saw net outflows totaling $15.67 billion for the year-to-date ending May and subpar performance.
Gross, co-founder of Newport Beach, California-based Pimco, has also been under intense scrutiny since his public falling out with El-Erian and news reports about Gross’s demanding and sometimes abrasive management style.
But for its part, Gross’s performance at his Pimco Total Return Fund is showing some signs of stabilization.
In the 12 months ending last Friday, the Pimco Total Return Fund, which has $229 billion in assets under management, is now beating its benchmark Barclays U.S. Aggregate Bond Index by 32 basis points, Hodge pointed out.
“At the end of the day, Pimco and Bill Gross should be judged by the value that we deliver to our clients. That’s the test,” Hodge told Reuters in an interview. “Through the Total Return Fund and other strategies, Bill has created more value for more investors than anyone in the history of our industry.”
The half-day summit on Friday featured Gross but also showcased Pimco’s new deputy chief investment officers and Rich Clarida, Pimco’s global strategic advisor.
After the client event, Gross also did a town hall meeting with employees in Pimco’s offices, which was also attended by several hundreds of personnel, a Pimco spokesman said. Pimco declined to comment on what Gross discussed at Friday’s client and employee events.
While many say Gross appears more engaged with colleagues, some institutional investors are still waiting for a turnaround in his performance.
The Pimco Total Return Fund’s three-year Sharpe ratio – a measure closely followed by pension funds, foundations and endowments — is hovering around 1.02. That is trailing the Barclays Aggregate at 1.24 and the average intermediate-term bond fund category at 1.26 (The higher a fund’s Sharpe ratio, the better a fund’s returns have been relative to the risk it has taken on).
Hodge added: “Generating alpha is more than simply buying and selling bonds, it is about breaking with conventional wisdom and ultimately about putting yourself on the line.”

Money manager titans who can’t wait until 2014

The year can’t end fast enough for some of the world’s biggest investors.

Bill Gross, who many like to consider the King of Bonds, lost one of his prized titles last week when his PIMCO Total Return Fund was stripped of its status as the world’s largest mutual fund because of lagging performance and a swamp of investor redemptions.

The PIMCO Total Return Fund — somewhat of a benchmark for many bond fund managers — had outflows of $4.4 billion in October, marking the fund’s sixth straight month of investor withdrawals, and lowered its assets to $248 billion, according to Morningstar.

The sultans of swing

Although most investors have been pleased with the steadily rising U.S stock market over the past six months, funds that profit when markets are convulsing are licking their wounds.

With market stress at multi-year lows, volatility hedge funds returned just 1.16 percent in the first quarter, compared with 3.7 percent for the broader hedge fund group.

Some of the volatility specialists are doing better than others by capitalizing on major market moves in Japan, for example. And some are doing better simply because they are ‘short’ volatility funds – they tend to perform better when markets are calmer. But those funds are now few and far between.

Obama hearts El-Erian

By Sam Forgione and Matthew Goldstein

OK, so it’s not a big gig like being nominated to head the Treasury Dept. But President Obama’s decision to tap PIMCO’s Mohamed El-Erian to head the President’s Global Development Council is no insignificant matter.

As the co-chief investment officer of the giant bond shop founded by Bill Gross, El-Erian is seen as the eventual heir apparent to run the Newport Beach, Calif firm. And El-Erian increasingly has become one of PIMCO’s most visible faces—maybe even more than Gross himself these days–when it comes to talking about what ails the U.S. and global economies.

The assignment is another indication of PIMCO’s growing ties to the Washington establishment, something that has developed as the firm has grown to manage $1.92trillion in assets and played a starring role along with BlackRock in helping to manage some of the financial crisis rescue programs. (For more see the Special Report that Jenn Ablan led earlier this year on Gross and his empire, Twilight of the Bond King).

Gundlach doesn’t whine over his stolen wine

By Jennifer Ablan and Matthew Goldstein

Who said bonds are boring? In recent days, Jeffrey Gundlach, the new king of the fixed-income world, has been dominating headlines with his lengthy CNBC interview on everything from counterparty risk to the market’s love affair with Apple stock to talk in the blogosphere about Gundlach’s pricey Santa Monica, Calif. residence being burglarized of more than $10 million in assets.

Against this backdrop, Gundlach’s firm, DoubleLine, hit a huge milestone this week as well, hitting $45 billion in assets under management.

For those who watched Gundlach’s TV interview on Wednesday they would never have guessed that the 52-year-old lost several high-end paintings and a 2010 red Porsche Carrera 4S in the burglary at his home a week earlier. The stolen goods include paintings by such artists as California Impressionist Guy Rose and landscape artist Hanson Duvall Puthuff. Also stolen were five luxury watches, wine and cash.

UF Weekend reads – The PIMCO edition

Jenn Ablan likes to tell me that people are always writing about PIMCO and Bill Gross, the long reigning “king of bonds.” And when you think of it there’s a lot of truth to that assertion.

Gross’ mammoth $263 billion Total Return Fund gets endless coverage because–by its very size–it really is the bond market. It’s one reason why so much ink is spilled whenever the Total Return Fund has a month where investors pull more money out of the fund than put in.  And it’s why there’s so much analysis of what Gross & Co. are doing with Treasuries and mortgage-backed securities–and whether they are using lots of leverage and derivatives to boost exposures.

Then again, it’s hard to ignore Gross & Co. since the bond king and his co-partner and heir apparent, Mohamed El-Erian are on TV virtually everyday offering their views on just about anything doing with the economy.

UF Weekend Reads

The latest offerings by our Sam Forgione include a little Bridgewater, PIMCO and Jamie.

From National Journal:

Jim Tankersley airs Nick Hanauer’s championing of the middle class after Hanauer’s TED Talk was pulled.

From Barron’s:

Ray Dalio explains why macro efforts to support the U.S. economy are “beautiful” in Sandra Ward’s interview.

UF’s Weekend Reads

We’re introducing a new feature on UF: a link to some weekend reads. Here is the first edition complied by Sam Forgione.

 

From The Guardian:

Andrew Balls, head of European investment for PIMCO from its London office, shares similar views on Europe and regulation with his brother, Ed Balls, of the British Labour Party. Brotherly love even extended to one of PIMCO’s major investment decisions: when Bill Gross decided to sell UK government debt in 2010, and Andrew Balls allegedly disagreed with the move, apparently backing his brother’s political status.

From The New Deal 2.0:

An eye for an eye, a rebuttal for a rebuttal. Bruce Judson argues that Jamie Dimon’s vengeful jab at the media for making less money than JP Morgan is unfair. For one, banks are government-backed while media companies aren’t.

PIMCO and BlackRock go strolling down K Street

By Jennifer Ablan and Matthew Goldstein

Wall Street may hate financial regulatory reform, but lobbyists certainly love it—especially ones working on behalf of giant asset managers PIMCO and BlackRock, which control a total of nearly $5 trillion in assets.

Last year, PIMCO and BlackRock both upped their lobbying expenditures in a big way.

The not-for-profit group OpenSecrets.org reports that Bill Gross’s Pacific Investment Management Company spent $450,000 on lobbyists last year, up from $120,000 in 2010. BlackRock’s spending on lobbyists rose to $2.5 million in 2011, up from $1.45 million in the prior year.

Paul after PIMCO

 

By Jennifer Ablan and Matthew Goldstein

Paul McCulley says working at bond giant PIMCO was like being in Camelot. But in some ways, Bill Gross’s former top Federal Reserve watcher seems a lot happier and more at peace with himself since leaving the Newport Beach, Calif.-based firm at the end of 2010.

These days McCulley, who is credited with coining the phrase “shadow banking” to describe the role Wall Street banks and hedge funds play in pumping liquidity into the financial system, looks more like a professor at some liberal arts college than a once mighty money manager of some $50 billion.

His hair is long—down to his shoulders. He sports a beard and has lost 20 pounds. He regularly walks 8 miles a day and spends as much time fishing as he does thinking about ways to get the U.S. economy out of its current liquidity trap—a situation in which all the Fed’s priming of the pump does little until consumers can get relief from all the mortgage and credit card debt they accumulated in the past decade.

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