Bill Gross of Janus Capital sat down with Bloomberg Television’s Erik Schatzker at his office in Newport Beach, California to discuss his new life, how he defines success and why he’s giving away his multi-billion-dollar fortune. On how much he’s given away, Gross said: “I think to this point probably $600 million to $700 million.”
Gross went on to say “We’ll give everything that we have other than our home away to either philanthropic causes that I’ve talked about, or to the foundation.” He said the amount he’ll give away “is staggering, even to me.”
On why he hasn’t talked more about his philanthropy, Gross said: “I guess Sue and I try and keep it quiet. We’re not the–not that there’s anything wrong with this,–but we’re not the type to attend functions and parties and galas. We like to work underneath so to speak.”
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On leaving Pimco, Gross said: “I didn’t like how I left, so to speak Pimco. And I didn’t care for the aspersions that somehow I might have lost my touch. And I don’t think I’ve lost my touch, I’m in this seven days a week, and 18 hours a day, believe it or not. And that speaks to interest. And hopefully the performance numbers speak to competence…One of the reasons that I’m still doing this, is just to prove that I still got it.”
On whether he feels happy, Gross said: “I’m getting happier. You know, four or five months ago was a low point. Everybody has low points. And I’m not suggesting that was the low of lows. Having had the career I’ve had, my wife daily told me to get over. So hopefully I’ve done most of that.”
Bill Gross: We Try to Keep Our Philanthropy Quiet
The full interview will air this evening on Bloomberg Encore at 8pm ET/PT. Livestream available here: http://www.bloomberg.com/live.
SCHATZKER: Performance of the unconstrained bond fund has really been accelerating, and I figure that has to feel good, doesn’t it?
BILL GROSS: It feels wonderful. You know, it– one of the reasons– that I’m still doing this, is just to prove that– you know, I still got it. You know, maybe like– the– you know, a 38 year old quarterback that– still has an arm and can– take us down to the Super Bowl. So yeah, it feels great.
SCHATZKER: Who– to whom do you need to prove anything?
GROSS: Well, that’s my particular problem. I understand intellectually that– not many– many people care– whether I prove it or not prove it. My wife does– because she has to put up with me at night. But– it’s an obsessive thing that has– driven me and informed me and helped form PIMCO. And when you get to be 71, Erik., you don’t– even though you can figure it out intellectually, you don’t necessarily– lose it.
SCHATZKER: ‘Cause surely you must get that there are people who wonder why would Bill Gross, after building a track record as the most successful bond manager ever, be doing this?
BILL GROSS: Well, I d– I didn’t like how I left, so to speak– PIMCO. And I didn’t– care for the– aspersions that somehow I might have lost my touch. And– I don’t think I’ve lost my touch, I– I’m in this seven days a week, and– 18 hours a day, believe it or not. And– that speaks to interest. And– and hopefully the– the performance numbers speak to competence.
SCHATZKER: So all your investors care about is performance. What about you? How do you define success?
BILL GROSS: Well, I define– success– differently now than five or ten years ago. I mean– you know, success– in the early years was business-related, and asset growth related, and of course, you know, with family was related to how well your son or daughter was doin’ on the soccer field, et cetera, et cetera.
You know, these days as the children– children have grown and are doing their own thing, you know– certainly still– very– very much connected with– with their own successes, but– but– my wife Sue and I have– have raised our family. And– and now success– becomes a function of– what we can do– with the rest of the world outside– you know, Irvine, to– to– to help others and– and to prove that– some of the prior success can– blend into– success for the future for others.
SCHATZKER: Like what, for example?
BILL GROSS: We’ve– connected (THROAT CLEAR) six or seven years ago with the University of– California at Irvine with their stem cell research center. We’ve recently– connected with– Duke University in terms of– stem cell and Alzheimer’s in– in terms of– what they’re doing.
We’re frequent– developers I guess of– of hospital and– hospital foundations. We’ve– we’ve funded an emergency center in Laguna Beach. One of these days– I– I probably will be– a patient at it.
So success– these days, is, you know, still performance. As I’ve indicated, I’m still obsessed with that. But it’s– it’s also extending– the benefits to other parts of the world.
SCHATZKER: Why though, don’t you talk more, or haven’t you talked more about your philanthropy?
GROSS: I guess Sue and I try and– keep it quiet. We’re– we’re– we’re not the– not that there’s anything wrong with this, but– we’re not the type to attend functions and– and parties and galas. We– we like to– to work– underneath so to speak. If only because–
BILL GROSS: Yeah, if– if only to– to be honest– because we like to be in bed at 7:00 at night watching Jeopardy, as opposed to– having some cocktails with people that we don’t know. So it– it’s quiet because we’re quiet people. You know, we– we eat at– a Mexican restaurant just down the corner. It costs– $15 total– absent the margaritas. You know, those are– that’s just the life that we pursue.
SCHATZKER: I’m gonna ask you what sounds like a crass question, (THROAT CLEAR) so forgive me. But how much money have you given away?
BILL GROSS: Well– I– I think to this point probably– $600 million to $700 million.
BILL GROSS: Yes. And– I think the Gross Family Foundation, of which– our kids are a part– three kids– Jeff, Jen, and Nick– you know, that that’s the second largest– philanthropic organization in– c– Orange County, I’d say Orange County.
SCHATZKER: Do you share the same goal that some other people share, or have, which is by the time it’s all said and done with, I will have given it all away?
BILL GROSS: You know, certainly in terms of the foundation. I mentioned the foundation is a family foundation, and– and so I have three kids. They’re between– 26 and– 42 years old. And– and so they’ll continue the effort. But– yeah. We’ll give everything– that we have other than our home– away to– either philanthropic causes that I’ve talked about, or to the foundation.
SCHATZKER: That ultimately will amount to billions of dollars.
BILL GROSS: Yes. Yes– w– which is staggering– even to me.
BILL GROSS: You know, it’s really hard to sink in in terms of how much it is and– what effect it could have– there’s– a program that– I’m lookin’ into now along with Sue– called Give Directly, in– in which– you can contribute a small amount or a large amount of money to– to individuals in Uganda, in which– money is transmitted directly to individuals via cell phone. Most–
SCHATZKER: Mobile money.
BILL GROSS: most Africans have cell phones, which is hard to believe, but mobile money. And so if– if you can– do that and contribute $25 or $50 to– someone in Uganda that, you know, of course, you haven’t met– you know, boy, I mean, that’s almost as good as outperforming the market, from my standpoint. (LAUGH)
SCHATZKER: Almost. Tell me Bill, how is it that you have been able, I mean, over the course of amassing something of a personal fortune as we’ve just established, to remain– modest, if you will?
BILL GROSS: I give most of the credit to– to Sue. And we’ve been married for 31 years, and– when I married her– I admitted that– she had a little bitta Newport Beach in her, but a lot over Mission Viejo, which– which is– a town about 35 miles south. And just a middle class– type of community. As a matter of fact, we both grew up there. And so, you know, Sue helps me be grounded. She– she counts– every little penny and– and that–
SCHATZKER: That’s a lotta counting. (LAUGH)
BILL GROSS: I know, that’s– that’s what I try to tell her. In– in terms of the philanthropy, I– I keep tellin’ her, I say, “We gotta get a move on here.” I’m 71, and– she’s a little bit less, actually– five or six years less. But– yeah, it’s a lotta counting and a lotta– a lotta giving that has to take places b– before at some point– you know, you’re not quite sure what you’re– what you’re giving.
SCHATZKER: How are you gonna define success for yourself at Janus?
BILL GROSS: I th– I think by– more by performance than by assets, although I would love the assets to grow. When I came to Janus it wasn’t with the intent of creating a PIMCO two. You know, I recognized that– you know, PIMCO one took 20 or 30 years, and that wasn’t– a realistic goal. It didn’t mean that I didn’t wanna, you know, double assets every year like– I did at PIMCO.
But it did mean– to have a reasonable sense of organization and– the future. And so– success for me– will be defined by– performance for– existing clients. And, you know, it’s always been that way.
SCHATZKER: If it’s not gonna be as big as another PIMCO, how big would you like it to be?
BILL GROSS: I– I had no really– idea on that. You know, we– we’ve got about $2 billion right now. Somea that– you know, thanks to George Soros, who– who– unbelievably– called me two days after– I left PIMCO and said, “Bill– would you like to manage a half a billion dollars for me?” And I said, “Yes sir.”
SCHATZKER: Is there a point at which big becomes too big?
BILL GROSS: I think so in terms of active management. It– and this is not to diss PIMCO. We know they have close to $2 trillion, and that’s big. You know, other institutions are big too. I– I would only say that it’s easier– with $2 billion to– to– to move money. The liquidity is obviously better. And– it– it’s less onerous in terms of organization and decision-making, where you have to build a consensus and a consensual outlook in terms of what you wanna do.
That doesn’t mean that– you know, being here by yourself, so to speak, relative to PIMCO, is– is the best of all worlds. It’s obviously good to get feedback and to get a counterargument. But it– it definitely is a situation here at– Janus where I– I can do things– that I think will make money a lot quicker than in a larger frame.
SCHATZKER: Tell me more about that. The– the opportunities if you will, the benefit of being small, of managing, for the time being, single b– digit billions as opposed to– triple digit billions.
BILL GROSS: Well, one of the problems at– at– at PIMCO to compare– because that– that’s all I know– is that whenever we did something– either the press would– would observe it at the end of the month, or the end of the quarter, or even in between. Or certainly the market would know. I mean, you can’t do– billions and billions of dollars of– trades without– word spreading fast.
SCHATZKER: Kinda like wildfire, actually.
BILL GROSS: I observed this early in– in the 1970s, when the State of California was the big– cheese. Certainly in California, but probably in the country, and– you know, every– everyone was always asking, “What’s the state doing? What’s the state doing?” And you’d know pretty quickly. And so it, you know, that’s one of the disadvantages of being big is that word spreads quickly. And it gives– the market the opportunity to work against you, or to– to– anticipate– going forward, yeah.
SCHATZKER: Do you feel less of a need to trade in derivatives now than you did previously, because of the fact that– you’re smaller?
BILL GROSS: Actually more of a need. Because of– of how I’ve constructed the unconstrained– fund and its philosophy.
the unconstrained fund basically has– takes all of its money in terms of cash, and invests in 12 to 18 month paper. It yields 2%. And then on top of that– you– you overlay your derivatives. It’s sorta like I s– I see it in terms of a pie. You know, the cash goes into the crust.
The crust yields 2%. Hopefully it– it tastes good. But the– filling, whether it’s apple or berry or– whatever– is the derivative space. And– and so if you can overlay derivatives in a 2% to 3%– type of levered way– that can produce a 5% to 6% return, which is what– the unconstrained fund is on target for for the first 12 months. No results guaranteed.
SCHATZKER: Unconstrained has become something of a dirty word in some quarters. What does unconstrained mean to you?
BILL GROSS: Well, unconstrained was a word– four or five years ago that was really– meant as– a solution to the fact that– that bonds were about to have a bear market. Bonds have to had that bear market, but– investors still wanted to say, “Hey, if– if I’m going to buy something that’s going to go down in price– you know, I– I need– an– a different alternative– to duration space.”
And so that’s where unconstrained came from. It says– basically let’s not emphasize duration so much, but let’s talk about credit. Let’s talk about volatility. Let’s talk about liquidity and illiquidity, and see if you can– in terms of that filling, in terms of the filling relative to the pie, if you can add– 300 or 400 basis points with a relatively little risk. You know, let’s not– lose any money.
SCHATZKER: How far are you prepared to go with the freedom that it offers you? Would you, you know, how far up the risk curve is comfortable for you?
BILL GROSS: Well– well, the risk– and– and we can define that in a number of ways. The– I mean, the risk curve basically speaks to volatility and– and the– the downside, I guess, of prices. And the upside. But–
SCHATZKER: Well, you’re talking about it in terms of capital structure, you know?
BILL GROSS: Sure. In the capital structure– embellishes risk in those ways. And when you combine, you know, that type of risk or duration risk or– liquidity risk or volatility risk with, you know– a levered concept, then you– you have the potential of– for– a chem– a chemical mix– that can be explosive.
So, (THROAT CLEAR) you know, you’ve gotta contain the risk on– on the side– in terms of credit. There– there– there’s not a lotta junk in the unconstrained fund. Very little. There’s not a lotta duration. There’s– a lotta volatility, we just spoke to that. So you gotta get somewhere.
And– and on the other side, it’s– it’s only levered two to three times. And– and how does that all come together? Well– you know, hopefully– it comes together with– a price volatility that– is close to a low duration bond fund. But not necessarily.
SCHATZKER: So we’re never gonna see Bill Gross buying stocks.
BILL GROSS: Oh– (THROAT CLEAR) you know, the– the unconstrained fund has some stocks in it. There’s some– some– pretty certain arbitrage situations that– yield and don’t– don’t jump outta your seat here, that yield 2% to 3%– on an annual basis. And they form parta the crust that I’m talkin’ about, 2% to 3%, you know, with relatively little risk. Fine. But– we’re talkin’ 5% to 6% to 7% of the portfolio.
SCHATZKER: What’s the max that would ever become?
BILL GROSS: Ten. I’m– I’m not– I’m not turning this into an arbitrage– type of fund. You– you know, only– pretty much slam dunk deals and– and keep it down.
SCHATZKER: I’m curious to know, now that I’ve learned this– stocks in the unconstrained fund, how do you manage your personal money? Clearly some of it– I would imagine some of it is in the unconstrained fund. Yes?
BILL GROSS: Yes.
SCHATZKER: But not everything. You don’t put all the eggs in one basket?
GROSS: No. And– and that’s been– a well-publicized type of situation. But I– when I came here and when the unconstrained fund began, I– I said– you know, why not– eat your own cooking?
SCHATZKER: It’s called seed capital, right?
BILL GROSS: Yeah. And then the other side of me said, “Why would I pay my– Janus– (LAUGH) you know, (UNINTEL) basis points for– what I could do on my own?” Well– well, the fact is that I can’t really do all those things on my own. I can’t call up my broker and– and– and say– you know, “Do this or do that.” He wouldn’t understand what I’m talkin’ about.
And– and so– you know, it just seemed like a natural situation in which I could– should put some of the money in (THROAT CLEAR) the Janus unconstrained. Now, the rest– you know, and I– I– I manage– you know, as well our– our family foundation, which is– sizeable. A lot of that is in– closed end fund territory. Not necessarily liquid, but– you know, in an environment in which interest rates are low.
And– those closed end funds can lever– to a certain extent. You can– you can get a 6% to 7% return, tax free, for instance in– in a wide variety of closed end municipal funds. Not without risk– but– you know, those are some of the vehicles that– on a weekend, I’ll– I’ll take out my Barron, so that– hopefully that’s not– a nasty word here. But– I’ll take out my Barron’s and– check ’em all out. And I’ll hook my Bloomberg screen while I’m watching, you know, the– the playoffs or the– hockey, basketball, whatever. And– and go to town finding– some new, good ideas. It’s– it sounds sorta boring, but– but I really love it.
SCHATZKER: Is Bill Gross in private equity?
BILL GROSS: No. No–
SCHATZKER: No. (UNINTEL) equity?
BILL GROSS: I’m mildly. And– and– and your old standards, your Procters and Johnsons and–
SCHATZKER: Blue chips.
BILL GROSS: Yeah.
SCHATZKER: Before we finish– there’s something I’d like to know. You seem happy. Are you happy?
BILL GROSS: Yeah. I’m– I’m getting happier. You know, four or five months ago was– was a low point. Everybody has low points. And–
SCHATZKER: It’s the–
BILL GROSS: I know. And I’m not suggesting that that– was the low of lows. You know– you know, having had the career I’ve had, you know– my wife daily told me to get over. And– and so hopefully I’ve– I’ve done most of that. And– yeah, and– I’m happy to be with Sue and to– to have a family that’s healthy.
Every time we walk on the weekend, we say, “You know– none of the kids have ever had– broken bones or an accident or– we’ve been really lucky.” And so yeah, it gets to a point where you– if you’re not happy– you know, with that type of situation, you might as well, you know, pack it in.
SCHATZKER: How would you describe your quality of life right now?
BILL GROSS: Well– you know, I– I would– I– I– personally I would start with my health. I– I’m– I’m healthy. And so that’s high quality for a 71 year old. Many aren’t. You know, I’m– the– the quality of life from a standpoint of– obviously the financial situation has been taken care of, and long ago.
You know, there was– the– an essay that I always try to remember. And– it goes that happiness is– is– a function of– finding– something to do– someone to love, and something to hope for. I’ve got something to do. Certainly I have someone to love. And– and I’ve got– something to hope for in terms of– my family– you know, the things we’re doing with the foundation. And– and yes– with performance going forward, so–
SCHATZKER: So long as you’re still performing, so long as you’re still proving to yourself that, in your words, you’ve still got it, will you keep doing this ad finitum– ad infinitum? Until whenever?
BILL GROSS: Yes. As long as I can stay healthy. I– I will say that– that I do know, by common sense, that– you know, the tension that comes with this job is not health-creating. You know, sorta like being a pro football player. At some point maybe that concussion that you got five years go just– just–
SCHATZKER: Comes back to haunt you, yeah–
BILL GROSS: Yeah, it come backs to haunt you. So– you know, as long as I can get up every morning and– with a clear mind and– and come into the office, and– and have– my– fellow professionals not give me a clue that– that I’m losin’ it– then– then yeah, I’ll– I’ll– why would I want to– do anything else? I– it’s perfect.