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 Gross told Reuters that he had "evidence" that El-Erian "wrote" a
February 24 article in the Journal, which described the worsening
relationship between the two men as Pimco's performance deteriorated
last year, including a showdown in which they squared off against
each other in front of more than a dozen colleagues at the firm's
Newport Beach, California headquarters.
Gross, who oversaw more than $1.91 trillion in assets as of the end
of last year and who is known on Wall Street as the 'Bond King',
said in a phone call to Reuters last Friday: "I'm so sick of Mohamed
trying to undermine me."
When asked if Reuters could see the evidence about El-Erian and the
allegation he was involved in the article, Gross said: "You're on
his side. Great, he's got you, too, wrapped around his charming
right finger."
He said he knew that El-Erian, who had been widely seen as the heir
apparent to Gross but is now due to leave in mid-March, had been in
contact with Reuters as well as the Wall Street Journal.
Gross indicated he had been monitoring El-Erian's phone calls.
A Pimco spokesman said in an emailed statement: "Mr. Gross did not
make the statements Reuters attributes to him. He categorically
denies saying this firm ever listened in on Mr. El-Erian's phone
calls or that Mr. El-Erian 'wrote' any previous media article."
He added: "As a regulated company, PIMCO is required to retain
records of its employees' communications to help ensure compliance
with the firm's policies."
Pimco's owner, German financial services company Allianz SE <ALVG.DE>,
was not available for comment.
El-Erian, who was named to a part-time position as chief economic
adviser to Allianz last week, could not be reached for comment.
When asked about Gross's claim that El-Erian "wrote" the article, a
spokeswoman for Dow Jones, the publisher of The Wall Street Journal,
said: "This is an astoundingly incorrect claim about a thoroughly
reported article that was in the best tradition of The Wall Street
Journal."
El-Erian signed a non-disclosure agreement as part of his Pimco
departure terms, according to a source close to him. Reuters
couldn't ascertain the details of his exit package, including its
confidentiality aspects or the size of his payout.
The February 24 Journal article detailed the unraveling of the once
vaunted investment and management partnership between Gross and El-Erian.
The article revealed the increasing strains between the two
executives over Gross's combative management style and whether he
should trust other investment managers more.
"I have a 41-year track record of investing excellence," Gross told
El-Erian one day last June, according to the Journal article, which
cited two witnesses as its source. "What do you have?"
"I'm tired of cleaning up your s---," El-Erian responded, referring
to conduct by Gross that he felt was hurting Pimco, these two people
recalled, according to the article.
A source who was present at the time confirmed to Reuters that the
report of the exchange was accurate.
[to top of second column] |
SOME PIMCO INVESTORS ON EDGE
The latest signs of a rift between Gross and El-Erian, who once
praised each other fulsomely, come as Gross is grappling with
clients who are also turning their backs on the very asset class
that has made him famous.
That is happening partly because the Federal Reserve continues to
reduce its controversial bond buying that has provided stimulus to
the U.S. and world economies.
Pimco saw its assets under management shrink by $80 billion in 2013
due to outflows and negative returns, according to Morningstar.
In February, Gross's flagship Pimco Total Return Fund had $1.6
billion of net outflows, its 10th consecutive month of outflows, and
it lagged 71 percent of its peers with a return of just 0.52 percent
last month, according to Morningstar. In 2013, it suffered a
negative total return of nearly 2 percent.
In mid-February, Gross sought to reassure the firm's clients about
the new leadership structure he has put in place since Pimco's
announcement of El-Erian's departure on January 21.
Gross called his announcement of six new deputy chief investment
officers a "significant improvement" from Pimco's previous
structure, which concentrated nearly all investment strategy
decision making onto the shoulders of Gross and El-Erian.
"I've never seen Bill and Pimco scrutinized like this before. This
is the most attention I have seen on them," said Eric Jacobson,
Morningstar senior analyst who has covered Pimco for nearly two
decades. "A couple of high-profile stumbles and mediocre showings,
coupled with some outflows — and with no identified successor for
life after Bill — clearly has some investors on edge."
Still, Jacobson said that Gross holds one of the best records in the
bond industry with the Pimco Total Return fund's 10-year and 15-year
annualized returns at 6.04 percent and 6.68 percent, respectively.
The fund's returns are beating 96 percent of its peers for those
time periods, he added.
(Reporting by Jennifer Ablan; additional
reporting by Jennifer Saba; editing by Paritosh Bansal and Martin
Howell)
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