Bill Gross Quits PIMCO to Join Janus | Chief Investment Officer

billgrosspimco Bill Gross, who starts work at Janus Capital on Monday. Bill Gross, CIO of PIMCO and manager of the world’s biggest mutual fund, has today quit the firm he co-founded in 1971 to join Colorado-based investment house Janus Capital.

In a statement released by Janus, Gross said he was looking forward to “returning my full focus to the fixed-income markets and investing.” He is to take on management of the Janus Global Unconstrained Bond fund from October 6.

PIMCO CEO Douglas Hodge revealed in a statement that “over the course of this year it became increasingly clear that the firm’s leadership and Bill have fundamental differences about how to take PIMCO forward.”

The move has already shocked investors and comes after nearly 18 months of continuous outflows from Gross’ flagship $222 billion Total Return Fund. This week it emerged that PIMCO was being investigated by the US Securities and Exchange Commission over potential transgressions in reporting bond valuations for the flagship’s exchange-traded fund.

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Janus is opening a new office for Gross in Newport Beach, California, where PIMCO has been headquartered for 43 years.

Gross’ exit from PIMCO caps a terrible year for the company. Co-CIO Mohamed El-Erian quit in January, and the Total Return Fund has endured 18 months of continuous monthly outflows amid underperformance. Speculation abounds that infighting spurred El-Erian’s departure, despite the creation of a deputy CIO structure.

According to Gross, he resigned in part to escape the managerial burden of his role at PIMCO. “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,” he said.

“I chose Janus as my next home because of my long standing relationship with and respect for CEO Dick Weil and my desire to get back to spending the bulk of my day managing client assets. I look forward to a mutually supportive partnership with Fixed Income CIO Gibson Smith and his team; they have delivered excellent results across their strategies, which deserve more attention.”

Weil called Gross’ track record “exemplary,” and said he “will offer an exceptional approach to navigating today’s increasingly risky markets with a focus on macro, unconstrained strategies.”

“His involvement provides Janus a unique opportunity to offer strategies and products that are highly complementary to those already managed by our credit-based fixed income team. With Bill leading our global macro efforts and Gibson our credit-based fixed income team, I am confident Janus will be able to meet the needs of virtually any client.”

In a statement, PIMCO said a succession plan for Gross was in place and a new CIO would be announced shortly. CEO Hodge, who replaced El-Erian earlier this year, said he is “grateful for everything Bill contributed to building our firm and delivering value to PIMCO’s clients,” but that fundamental differences prevented the continuation of the relationship.

“As part of our responsibilities to our clients, employees, and parent, PIMCO has been developing a succession plan for some time to ensure that the firm is well prepared to manage a seamless leadership transition in its portfolio management team,” Hodge continued. “Earlier this year, the firm established a new portfolio management leadership structure that reflects our long-held belief that the best approach for PIMCO’s clients and our firm is to evolve our investment leadership structure to a team of seasoned, highly skilled investors overseeing all areas of PIMCO’s investment activities.”

PIMCO’s European sales and parent company Allianz Asset Management’s earnings have already taken a hit this year following El-Erian’s departure and the Total Return Fund’s weak performance.

Experience outside of the investment world can boost a fund manager’s performance, research has shown—as long as they invest in the area they once worked in.

The findings were published by Gjergji Cici, Monika Gehde-Trapp, Marc-André Goericke, and Alexander Kempf, in a paper titled “What They Did in Their Previous Life: The Investment Value of Mutual Fund Managers’ Experience Outside the Financial Sector”.

“Our findings suggest that when managers make stock picks from their experience industries or when they time the returns of their experience industries, they perform well.”The quartet studied 130 US-based mutual fund managers. For each manager, the researchers separated out stocks related to industries in which the manager had worked, and stocks from other “non-experience industries”.

“We find that portfolios mimicking holdings from the fund managers’ experience industries earn significantly higher risk-adjusted returns than portfolios mimicking their holdings from non-experience industries,” the researchers wrote.

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The outperformance was found to range from 3% to 5% over a 12-month period, while “portfolios mimicking holdings from non-experience industries earn risk-adjusted returns that are not consistently different from zero”.

The researchers also found that managers were also better at timing investments in their experience industries. Managers increased their industry weights prior to strong returns over a subsequent 12-month period, and decreased prior to weaker performance, “in a significantly stronger fashion in their experience industries”.

The authors said this evidence “clearly documents the investment value of industry work experience”.

“However, portfolio managers are given mandates to run diversified portfolios, which might restrict their ability to utilize their prior experience to the fullest,” they wrote.

The researchers argued that fund management companies should either relax investment restrictions for some managers or “give these managers mandates to run sector funds that primarily invest in their experience industries”.

“Following such a strategy would allow these managers to make greater use of their experience in their portfolio decisions,” they concluded.

You can access the paper here.