NEW YORK (Reuters) - Bill Gross, the bond market’s most renowned investor, quit Pimco for distant rival Janus Capital Group Inc on Friday, the day before he was expected to be fired from the huge investment firm he co-founded more than 40 years ago.
Gross, 70, had been clashing with the firm’s executive committee and had threatened to resign multiple times, a source familiar with the situation said. The committee had planned to accept his latest resignation from the post of chief investment officer on Saturday.
The surprise development, which rattled the U.S. bond market, came the day before Pimco and its parent, German insurer Allianz SE, planned to dismiss Gross, the source said.
Gross will manage the Janus Global Unconstrained Bond Fund beginning on Monday, Janus said in a statement. The fund, started in May, has just $13 million in assets.
Dan Ivascyn, one of Pimco’s deputy chief investment officers, was named late Friday as Group Chief Investment Officer to replace Gross, who according to Forbes has a net wealth of $2.3 billion.
In addition, Pimco promoted the existing deputy CIOs to Chief Investment Officer positions: Andrew Balls, CIO Global; Mark Kiesel, CIO Global Credit; Virginie Maisonneuve, CIO Equities; Scott Mather, CIO U.S. Core Strategies; and Mihir Worah, CIO Real Return and Asset Allocation.
Douglas Hodge, Pimco’s Chief Executive Officer, and Lew “Jay” Jacobs, president, will continue to serve as the firm’s senior executive leadership team, spearheading Pimco’s business strategy, client service and the firm’s operations.
“Pimco and Bill Gross are synonymous,” said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ. “It will be extremely hard to think of Pimco and Bill Gross as separate, and it will take time for investors to realize that he no longer is going to play a role at one of the world’s largest fixed income managers.”
The departure is the latest twist in a tumultuous year for Gross, long dubbed “the bond king” for his prowess in fixed-income investing, and for the firm he helped build into a $2 trillion powerhouse since co-founding it in 1971.
Earlier this year, his co-chief investment officer, Mohamed El-Erian, left Pimco, causing a highly public falling out between the two long-time colleagues. El-Erian remains at Allianz.
Gross’ flagship Pimco Total Return Fund, the world’s largest bond fund, with more than $220 billion in assets, has suffered nearly $70 billion of investor withdrawals over the past 16 months, while its performance has lagged its peers and the wider bond market.
His departure could lead investors to pull hundreds of billions of dollars in assets from Pimco and invest it with Janus, a Morningstar analyst said.
Pimco said Kiesel, Mather and Worah were named portfolio managers for the Pimco Total Return Fund.
Pimco had prepared investors for the possibility of succession as recently as two weeks ago, said Karissa McDonough, a fixed income strategist at People’s United Wealth Management.
“They were trying to reassure us by driving home the point that they’re not so dependent on Bill Gross anymore,” McDonough said.
The departure also comes within days of news that the U.S. Securities and Exchange Commission was investigating whether a popular Pimco exchange-traded fund that Gross ran and that was launched to mimic the strategy of the much larger Pimco Total Return Fund, had artificially inflated returns.
The probe is not related to Gross’ resignation, a spokeswoman for Allianz said.
Shares of Allianz fell 8.5 percent in German trading.
Short- and intermediate-dated U.S. Treasuries prices dipped as concerns were spurred that Pimco may have to sell Treasuries if investor redemptions at the firm increase.
The impact was also felt in the niche market of inflation linked bonds known as Treasury Inflation Protected Securities (TIPS), where breakevens - the difference in yield between TIPS and a comparable maturity treasury - were narrower across the curve, denoting an underperformance of TIPS.
According to the latest public data, PIMCO owned $79.8 bln of TIPS and was the largest holder in 25 of the 38 outstanding issues, according to Thomson Reuters publication IFR.
Gross’ move was seen as a huge coup for Janus, which has less than $180 billion in assets under management, less than the Total Return Fund and a fraction of Pimco’s total assets.
Janus shares closed up 43 percent at $15.89 on the New York Stock Exchange.
“I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organization,” Gross said in a statement.
Gross said he had chosen Janus because of his longstanding relationship with Chief Executive Richard Weil, who spent 15 years at Pimco before taking his current job in 2010.
Gross had also considered joining DoubleLine Capital. The investment firm’s head, Jeffrey Gundlach, said he had met with Gross last week to discuss a possible role there.
Gross will be based in a new Janus office to be set up in Newport Beach, California, where Pimco is based.
Reporting by Paritosh Bansal, Jennifer Ablan, Luciana Lopez, Jonathan Gould, David Randall and Sam Forgione; Writing by Dan Burns and Megan Davies; Editing by Lisa Von Ahn, Steve Orlofsky and Andrew Hay