In the week of Sept. 15, just before Gross shocked the investment
world on Sept. 26 by storming out of Pimco, he approached Gundlach
and dropped a bombshell. According to Gundlach, Gross said he was
about to be fired by the firm he had helped launch more than four
decades ago and had built into a $2 trillion investment powerhouse.
Gross disclosed he had been toying with quitting for some time after
Pimco erupted in turmoil earlier this year when Gross' heir
apparent, Mohamed El-Erian, left the firm, sparking a public falling
out between the two long-time colleagues. And Gross also told
Gundlach he had been in talks with another firm some six months ago.
He did not say which firm it was, Gundlach said.
Reuters first reported the meeting between Gross and Gundlach, who
runs DoubleLine Capital, the day of Gross' departure from Pimco for
Janus Capital Group <JNS.N>. Gundlach has now provided Reuters with
a much fuller picture of how the meeting came to pass and what they
discussed over three hours on the north loggia of Gundlach's Los
Gross declined repeated requests to be interviewed for this story or
to confirm Gundlach’s account of their meeting. Representatives for
Pimco, a unit of German insurer Allianz SE <ALVG.DE>, and Janus,
which is a much smaller player in the asset management business,
declined to comment. DoubleLine has been among the firms to benefit
as investors have ditched Pimco following Gross’s departure.
Gundlach said that Gross called him out of the blue.
"Bill called through the DoubleLine switchboard," said Gundlach.
Skeptical that it was really Gross, Gundlach said he "told the
receptionist to take a number and then call it to verify it was not
some prankster. A couple of hours later I called Bill from home."
In that initial phone conversation, Gundlach said: "Bill came out
and told me: 'Pimco doesn't want me anymore.' And I said, 'That is
an unbelievably stupid decision.'"
"Then he told me, 'They are going to push the button and fire me.'
To which I said, "This is really distressing."
"They" were the members of Pimco's executive committee, chaired by
Pimco Chief Executive Doug Hodge.
Hodge and Pimco President Jay Jacobs, through a Pimco spokesman,
declined to comment for this story.
Gross' position at Pimco had grown precarious in the months since
El-Erian left. The firm's flagship fund, the Pimco Total Return
Fund, run by Gross personally, was underperforming and bleeding
assets through redemptions. Sources have told Reuters that Gross had
clashed repeatedly with Hodge and the executive committee,
threatening to quit on several occasions. He finally did quit for
Janus, hours before the committee was planning to dismiss him.
Gundlach said he told Gross he sympathized with him as Gundlach
himself had been fired in 2009 by TCW Group, at the time owned by
French bank Societe Generale SA, in a dispute over management and
control of the firm’s fixed-income business.
Gross, who is 70, told Gundlach he didn't want to retire, according
to Gundlach. He wanted to keep managing money, albeit less of it.
At the conclusion of their phone call, Gundlach, 54, invited Gross,
who lives south of Los Angeles in Newport Beach near Pimco's
headquarters, to Gundlach's home about an hour-and-a-half away.
"I did think there could be some kind of 'Dream Team' concept,"
'TOO MUCH MONEY'
Gross arrived in a chaffeur-driven car the next afternoon around 4
p.m. The two perched in Gundlach's open-air loggia with mountainside
views of the Pacific Ocean and for three hours talked about their
careers, Gross' travails at Pimco and the possibility of the two men
- both at various times nicknamed "bond king" by the financial press
- combining forces.
Gross came well-informed about Gundlach, saying that his wife, Sue
Gross, had probed extensively into the younger man's history.
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The results of her research were very complimentary of Gundlach’s
career achievements, Gundlach said.
Gundlach told his rival that Gross had set the bar too high through
years of out-performance that had allowed Gross to build the Total
Return Fund into the world’s largest bond fund, which at its peak in
April 2013 had nearly $293 billion in assets. The fund was now too
large to manage, and unfairly even a few years of average
performance was now considered a failure, Gundlach said.
"I said to Bill: 'You are running too much money.' Bill agreed,
saying 'absolutely, smaller is better.'"
"It was clear that Bill had reconciled himself to the weaker
performance being because of the fact that he was running too much
money," Gundlach said. "There was no disagreement at all. This
change he is making is a good thing for his ability to perform."
In fact, Gross had proposed to Pimco's executive committee that he
manage considerably less money - roughly $40 billion to $50 billion
- and that he no longer wanted to run the flagship fund, Gundlach
said that Gross told him.
Instead, Hodge and Jacobs told Gross the
executive committee had reached a different decision. Gross told
Gundlach the committee said: "We want you to leave soon."
‘I HAVE FIVE RINGS, YOU HAVE TWO’
Word of the face-to-face meeting between Gundlach and Gross
surprised the bond world. For two decades, the two had no
relationship or interaction at all, even though their personas were
intertwined, compared and contrasted often in the financial media
and by other bond market players.
Morningstar named Gross "Fixed Income Manager of the Decade" in
2010, an award for which Gundlach was a finalist. Then in 2011,
Barron's magazine anointed Gundlach as the new King of Bonds.
Gundlach, for his part, said he never considered that he and Gross
had been "adversaries" though he admits the two clearly competed "to
log better returns than each other."
In their meeting, Gross "mentioned the 'Bond King' thing and seemed
surprised when I said I never encouraged the media on that one,
which is true," Gundlach said.
Discussing their potential legacies, Gundlach said Gross spun an
analogy to National Basketball Association star players Kobe Bryant
and the younger LeBron James.
"I am Kobe. You are LeBron James," Gross told Gundlach. "I have five
rings, you have two rings - probably going to five,” a reference to
the number of NBA championships the two players have each won.
The meeting ended with no decision made about a partnership, but
they agreed to stay in touch. Gundlach has made it clear that he
wants to remain fully in charge at DoubleLine.
Then, a week later, Gross called Gundlach on the night before his
Janus announcement. He left a voicemail message saying he was
leaving Pimco for another firm.
(Reporting By Jennifer Ablan; Editing by Dan Burns and Martin
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