When Mohamed El-Erian left Pacific Investment Management Company in January, it was amidst what appeared to be a cat fight among two of the world’s most respected investment professionals.

Mohamed El-Erian

Simmering dispute comes to head

A simmering dispute came to a head when El-Erian was confronted by Bill Gross, Pimco’s founder, in front of more than a dozen employees.  El-Erian had been pushing Gross to tone down his behavior with employees at the firm when Gross apparently put on display the very behavior El-Erian was trying to adjust.

“I have a 41-year track record of investing excellence,” Gross was reported to have loudly said to El-Erian in front of staff. “What do you have?”

“I’m tired of cleaning up you sh–,” El-Erian responded, according to a report in the Wall Street Journal.

The report noted that behavior from Gross had been “testier” than normal.  Separate speculation ties the turn in behavior to a potential bottom in the 20 year bull run for bonds and initiatives Gross had taken to diversify their investment offerings into algorithmic trading strategies to which El-Erian was not entirely supportive.

After the exchange of words, which quickly reverberated around Pimco headquarters according to separate sources, Gross ceded to El-Erian’s request to tone down his behavior with employees and agreed to make adjustments.

Algorithmic trading offering said to be matter of disagreement

Then in the fall of 2013, Pimco launched a managed futures offering, said to be the source of another dispute between El-Erian and Gross, according to separate sources.  According to a source, Gross, looking to diversify his investment firm from a bond-only shop as he perceived interest rates to potentially rise in the future, was optimistic on the algorithmic trading venture, headed by Josh Davis and an eight man team out of Newport Beach, California.  El-Erian, more the pessimist on algorithmic trading, was said to not entirely support the move and speculation was he viewed the move as a sign of losing focus on the firm’s core competency.

When El-Erian announced his surprise departure in January, many reports painted a rosy  picture between Gross and El-Erian. ValueWalk, however, reported potential disagreement the day after his departure.  In that article we noted “The investment philosophies of Bill Gross and Mohamed El-Erian were a study in contrast.  As Gross lamented the future potential for bond appreciation, he began to dabble in aggressive alternative strategies.  The firm developed a quantitative division and launched a managed futures trend following mutual fund in 2013, among other initiatives.  Gross was known as the optimist with a new and aggressive push into alternatives with El-Erian was known as the “worrywart…”

El-Erian’s leaving was a surprise to many, as Gross had publicly named El-Erian his heir apparent to the investment throne of nearly $2 trillion under management.  However, as reported in ValueWalk earlier in the month, that kingdom was said to be in trouble, as assets under management had been sliding in the firm’s bond fund while many market forecasters have been calling for an end to the twenty year bull run in bonds, issues ValueWalk addressed the day El-Erian announced his resignation from the firm.

Speculation as to El-Erian’s next move continues to buzz through the investment community, as it is likely to be in a rising tide position rather than what is perceived by some as a sinking bond ship.