The High School Breakup | Chief Investment Officer

We all did it, and we all had it done to us: dump someone—and deny that we did it because they were soon going to dump us.

Bill Gross and the company he founded, PIMCO, pulled the asset management equivalent of this on Friday, September 26. Shortly before 9:00 AM EDT, the news hit the wires: Bill Gross was leaving for Janus. Mass incredulity followed. Was this a joke? Had someone hacked a prominent Twitter feed, hoping to arbitrage the “news”? As it turned out, it wasn’t a hoax—it was the beginning of what will be remembered as one of the ugliest breakups in asset management history.

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(Art by JooHee Yoon)

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Within minutes of the news breaking, the spin began. Everyone seemed to have a source within PIMCO, and all these sources seemed to be saying the same thing: Gross jumped before he could be pushed, and the pushing was to be done later that afternoon. This was, to this industry observer’s eyes, a harkening back to much earlier years. “Yeah, she broke up with me at lunch—but only because she knew I was going to break up with her at dinner.”

Of course, unlike teenage breakups, this one had major ramifications for certain shareholders. On the announcement of the news, Janus’ stock soared upward of 40%, creating $800 million in value. PIMCO parent company Allianz correspondingly saw its shares fall more than 5%—a drop that destroyed nearly $5 billion in value. The price of treasuries, a large amount of which PIMCO’s Total Return Fund holds, also fluctuated wildly. And only time will tell what market flows will do: Commentators expect PIMCO to suffer, and Janus to benefit, as money follows Gross out the door.

If only all high school-style breakups were so interesting.

On “Anatomy of a Questionable Scandal: NJ Pension Accused of Pay-to-Play” (9/17/2014, by Managing Editor Leanna Orr):

Dear Ms. Orr,

On Sept. 17, 2014, Chief Investment Officer reported on a complaint to the New Jersey State Ethics Commission filed by the New Jersey State AFL-CIO regarding pay-to-play violations involving the state’s public pension funds. We asked for the investigation on behalf of the tens of thousands of government workers and retirees whose retirement security depends on an investment portfolio that is free of political influence.

The crux of the union’s request to the ethics commission, in fact, the entire basis of the complaint—whether investment decisions made during the Christie administration conflicted with political donations, in violation of state laws—is void in your reporting.

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You state in the article that “unlike the Bridgegate scandal, no factual evidence has indicated that politics play a role in the pension’s operation. That is, except as a distraction.”

Unfortunately, the article fails to acknowledge the law—specifically, the breadth of New Jersey’s ethics code regarding the restriction of political donations by investment professionals. The law prevents contracts from being preserved “if, within the two years prior to such engagement or during the term of such engagement, any political contribution or payment to a political party covered by this policy has been made” (NJAC 17:16-4.3 Restrictions). The law covers donations by “the investment management firm or any investment management professional associated with such investment.”

The investments specified in the complaint fall under that law. Don’t take our word for it—ask your attorney.

—Charles Wowkanech, President, New Jersey State AFL-CIO

On the celebration of CIO reaching its fifth anniversary:

Dear Kip and Team,

Congratulations on a spectacular launch of a new magazine in a very tough environment. Further congratulations in carving out a big space in a short period of time and building great credibility with a large (tough) audience. I have been lucky to contribute on a host of topics, as have many of my friends in the business. You have helped all of us expand our networks, while you’ve been building your own. You are not afraid to ask the tough questions and write about the issues with clarity, demonstrating great insight (for someone who hasn’t grown up in this business). And you (and your team) are a LOT of fun! All the best in taking this venture to new heights,

—Carol McFate, CIO, Xerox Corporation

Dear Kip,

Happy Birthday, CIO! Making the world safe for capitalism is not easy, but you and your merry band of Canucks (and honorary Canucks) make it look easy, occupying the practical, helpful space between the way, way too commercial and too, too academic. And your conference photo captions rival New Yorker cartoons for top spot among funny stuff. Well, not really—but good try. So who says investment journalism can’t be fun? Thanks for all you do, and here’s to another great five years!

—Eric Wetlaufer, Head of Public Markets, Canada Pension Plan Investment Board

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