Analysis: Pimco's Gross problem: who can succeed the 'Bond King'?

Thu Jan 23, 2014 8:43pm EST
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By Svea Herbst-Bayliss

BOSTON (Reuters) - When Pimco co-founder Bill Gross' heir apparent abruptly stepped down this week, the news illustrated just how reliant the company is on its star manager, an uncomfortable fact for investors who worry the 69-year-old has not done enough to find a replacement.

With Mohamed El-Erian, 55, resigning his position as chief executive and co-chief investment officer at the $2 trillion asset manager, all power now appears to be flowing back to Gross, who co-founded Pimco in 1971 and runs the $237 billion Total Return Fund, a mainstay in many retirement portfolios.

Gross, a yoga enthusiast who shaved his mustache a few years ago to look younger, greeted the departure by dividing up El-Erian's roles among a few more men, and by saying he is not yet planning for life after investing in bonds.

"Pimco's fully engaged. Batteries 110 percent charged," Gross said in a Twitter post from the firm's official "@PIMCO" account that still features a photo of Gross and El-Erian side by side.

"I'm ready to go for another 40 years!" his tweet continued, a nod to the rigorous work ethic demanded by Gross, known among rivals and investors as the "Bond King." Portfolio managers at Pimco start their days at 4 a.m. and rarely speak on the firm's Newport Beach, California, trading floor, communicating instead by email to keep the noise down.

El-Erian, a trained economist and one-time senior International Monetary Fund official known for his near daily appearances on cable television and wide-ranging market calls, landed back at Pimco seven years ago after leaving the bond house for a two-year stint as head of Harvard University's endowment. He first joined Pimco in 1999.

Pimco parent Allianz (ALVG.DE: Quote) brought him back in part to "reduce the Bill Gross risk," said one investor who asked not to be named for fear of angering Gross.

Even though Allianz quickly appointed Douglas Hodge as chief executive officer plus Andrew Balls and Daniel Ivascyn as deputy co-chief investment officers to replace El-Erian, analysts and investors agree that none are real contenders for Gross' job right now.   Continued...

Mohamed El-Erian, CEO and Co-Chief Investment Officer of PIMCO, speaks at the panel discussion "The Shape of Things to Come: Understanding the New Global Economy" at the 2011 The Milken Institute Global Conference in Beverly Hills, California May 2, 2011. REUTERS/Fred Prouser