Sep 27

Bill Gross leaves PIMCO…might lead to a downgrade or two

Irrespective of the quality of the rest of the firm, and there is a lot of quality, with the departure of Mohammed El Erian at the start of the year and now Bill Gross, it doesn’t take much to guess there may be a little destabilisation at the PIMCO offices for a while. Whilst Bill was the manager of the world’s biggest fund, the $220billion+ Total Return Strategy, he is also the manager of the PIMCO Global Bond fund which is one of the more popular global bond funds in the Australian market…so things could get interesting locally too.

When purchasing a managed fund, as much as the funds try and sell you on their process and systems, the final investment decision rests with the chief portfolio manager and when he or she leaves, so will their performance…that’s not to say performance will be bad, but it will be different as each manager has their own style. Therefore the return behaviour of the PIMCO Global Bond fund will differ when the new manager, most likely the very competent Scott Mather, brings his new style to the table. Throw in the fact that Bill’s departure will destabilise the business somewhat, I’m pretty confident we will see a raft of HOLD, FUND WATCH ratings, and given the high institutional following maybe even some SELL ratings.

Why a SELL rating? There is every chance the outflows from the funds that Bill Gross managed will be enormous as it is likely many large institutions will show their loyalty to Bill and take their funds to his new home at Janus ro simply elsewhere. So this massive outflow may put some downward pressure on their funds that could be forced sellers…so from an investor’s perspective…it may be better to get out now than be locked up for an indefinite period. I hope I’m wrong, but I can’t really think of the last time a manager of a world’s largest fund quit and moved to another company so to be honest…I don’t really know.

No matter what happens this departure will provide somewhat of a prelude as to what may happen when the world’s greatest investor, Warren Buffett, is no longer at the helm of Berkshire Hathaway. Whilst Warren is the world’s greatest investor, please keep in mind that in the world of bonds there is no bigger name than Bill Gross.


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