As PIMCO bleeds assets, Gross shows risk of star culture

Thu Oct 2, 2014 2:06am EDT
 
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By Simon Jessop and Nishant Kumar

LONDON (Reuters) - Bill Gross' exit from Pimco has seen billions of dollars leave the fund group and even more value wiped off the share price of its parent company, offering a warning both to firms who rely on star managers and the investors who chase them.

Gross's flagship Pimco Total Return Fund lost money every month from May last year, totaling nearly $70 billion by the end of August, Lipper data shows. More money has left since he was escorted to the door of the firm he co-founded in 1971.

With much of a mutual or hedge fund firm's value tied up in the brain power of its employees, as opposed to bricks, mortar and other hard assets, the loss of an important employee - known in the trade as "key man risk" - exposes the firm to asset flight which can even force it to sell holdings at a loss.

From the corporate blow dealt to Invesco Perpetual after it lost high-performing fund boss Neil Woodford earlier this year to the investors forced to move after hedge fund Highbridge Capital closed its Asia fund when its regional head left in 2011, the risk is industry-wide and notoriously disruptive.

Some have sought to protect themselves by fostering a 'team culture', while others, such as hedge fund Brevan Howard, have used employee non-compete clauses and turned to the courts in a bid to limit the impact of important staff leaving.

"Fund firms are caught in a delicate balancing act," said Julian Bartlett, a partner at consultants Grant Thornton.

"They realize that star managers sell, but that they also create a vulnerability if the firm over-promotes the fact that the success of a strategy is down to an individual," he added.

  Continued...

 
Bill Gross, co-founder and co-chief investment officer of Pacific Investment Management Company (PIMCO), speaks at the Morningstar Investment Conference in Chicago, Illinois, June 19, 2014. REUTERS/Jim Young