Bill Gross, Pimco and the myth of 'ever winning' managers

di Marco Liera (*) - 14/03/2014

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"Batteries  110% charged. I am ready to go for another 40 years", tweeted Bill Gross, 69, founder of Pimco, the largest bond manager in the world. Pimco products have been sucessful among italian investors, too, but for the first time after 20 years of excellent performances, its flagship fund, Total Return, recorded in 2013 a loss of 2% due the downturn in international fixed income.The disappointing performances of the Total Return (compared to its customers’ high expectations) caused last year a 41,1 billion dollars net outflow. According to the Financial Times, such situation is worrying the shareholders of Allianz, the insurance group that acquired Pimco in 2000, granting full autonomy to Gross and his colleagues. Such turmoil has been compounded by the out-of-the-blue resignment of Pimco’s boss, Mohamed El-Erian. According to the Wall Street Journal, El Erian resigned after a clash with Gross, but the new CEO Doug Hodge denied these circumstances on the Financial Times.

Gross and Pimco’s cases are emblematic of an industry - asset management– where it has not been understood yet whether the quality of services (measured by the risk-adjusted performance) over time is the result of talent or luck, or a mix of the two . Multi-year positive strings sooner or later come to an end. This is what happened to Gross, and what happened years ago to another great manager, Bill Miller of Legg Mason (who later left the post of chief investment officer).But stories like those of Gross and Miller - as long as they work – are useful to financial advisers, because the majority of their customers prefer to be told these narratives (that provoke appetite for gain) rather thah talking about financial planning. Another fund manager star, Peter Lynch, shocked Wall Street when in 1990, at the age of 46, decided to leave the helm of Fidelity Magellan fund, after 13 years of stellar performance. Just like in poker, where great players know when it is time to leave the table.

(*) Published on Il Sole-24 Ore on March 10, 2014

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