PIMCO And Bill Gross Still Facing Bumpy Road

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2014 has been a rough year for Bill Gross and Pacific Investment Management Co., but there’s light at the end of the tunnel. Things started going sour back in January, when the long-simmering feud between PIMCO CEO Mohammed El-Erian and founder Bill Gross exploded into the public purview with the sudden resignation of El-Erian. That, together with Gross’s frequent combative and impolitic public statements, has led to 14 consecutive months of outflows from the firm’s flagship Total Return Fund.

The Total Return fund has slightly outperformed peers over the last few months.

Confrontation with Gross in April

In fact, insiders report that morale at PIMCO was so low that senior management felt they had to confront Bill Gross in a meeting in April. According to the Wall Street Journal, several senior executives at PIMCO had become so concerned about Gross’s statements to media that they held a meeting to warn him to stop making divisive public comments.

Bill Gross still seen as popular founder

The WSJ reports that PIMCO CEO Douglas Hodge spoke effusively about Bill Gross’s enduring passion for investing back in June in front of hundreds of employees. “Forty-three years ago, he founded Pimco with a vision and a fire in his belly, and we are living that vision today,” Mr. Hodge enthused, with the 70-year-old Gross standing right next to him. “We all owe so much. Thank you.”

After the speech, the employees gave Bill Gross a standing ovation. The two executives shook hands warmly in a genuine feel-good moment, according to a number of meeting attendees.

Continuing fund outflows

The Total Return fund saw another 4.5 billion in outflows in June, and investors have withdrawn $64 billion from the now-$225 billion fund over the last 14 months. Moreover, the outflows came as investors globally were adding money to bond funds. Pimco has seen net outflows across all its funds for the last 13 months.

The continued hemorrhaging of investment capital is, however, creating tensions at PIMCO. According to the WSJ, Bill Gross questioned Hodge, who’s been with Pimco since 1989, regarding the company’s business strategy at a recent meeting.

“There’s a committee” looking into ways to improve sales and retain clients, Hodge answered, clearly irritated.

“You should know” what steps are being taken, Bill Gross replied sharply, these people say, before the subject was changed.

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