Gross walks away
Gross' abrupt departure climaxes a drama that has riveted industry executives, investors and rivals over the past year. It raises questions about the future performance of the firm, which counts tens of thousands of ordinary Americans and major institutions including the CalPERS pension fund as investors in its mutual funds, exchange-traded funds and other products.
U.S. Treasuries prices fell on Friday, Allianz slipped more than 6 percent in German trading and Janus soared 43 percent.
"I think people are concerned that Pimco is going to have to liquidate, so there is some pre-selling going on ahead of the fact that they may have to do some selling," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets.
Pimco has been stressing in meetings with its investors that the company had several people who could succeed Gross and that he would be playing a smaller role in the firm's investment and management decisions in the future, said Karissa McDonough, a fixed income strategist at People's United Wealth Management in Burlington, Vermont, who met with Pimco representatives in early September.
"They were trying to reassure us by driving home the point that they're not so dependent on Bill Gross anymore," she said.
Gross walks away without severance pay. There are none of the usual contractual obligations in his departure either, the source said. There is no non-compete agreement nor a "gardening leave" cooling off period before he can start to work at Janus, the source said. He starts working at Janus on Monday.
It couldn't be learned whether Gross owns a stake in Pimco. Forbes estimates his net worth at $2.3 billion.
Trouble in Newport Beach
The first signs of real trouble at Pimco came in January, when El-Erian left the firm and the acrimony spilled out into the open.
On Feb. 24, the Wall Street Journal published a report describing how El-Erian's previously close relationship with Gross had soured as the firm's investment performance deteriorated last year. Then Gross told Reuters that his one-time lieutenant was trying to "undermine" him, and that he had "evidence" El-Erian "wrote" the Journal article.
After El-Erian's exit, Pimco promoted six portfolio managers, including Ivascyn, to deputy chief investment officer roles and revamped the investment committee, positioning them as possible successors to Gross.
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But the new structure failed to stem a steady exit of investors from the Total Return Fund, which until today was managed by Gross. Cash outflows began last year due to weak returns and the fund declined 1.9 percent in 2013, its worst performance in nearly two decades. El-Erian's exit exacerbated investors' unease.
Earlier this week, Pimco said the U.S. Securities and Exchange Commission is investigating whether it inflated the returns of its Total Return Exchange-Traded Fund (BOND.P), also managed by Gross.
The sources said the SEC investigation, which is also into how securities were allocated between the mutual fund and the ETF and has been going on for at least a year, was not the trigger for Gross' departure.
As the problems mounted at Pimco, Gross, already known for an authoritarian management style, had flare-ups with other employees, including Hodge, several sources with first-hand knowledge of such incidents said.
At the same time, he made waves in public with unusual comments and behavior.
In April, he dedicated the first half of his widely followed Investment Outlook letter to his dead cat and headlined it "Bob". "Aside from sleeping, Bob loved nothing more than to follow me from room to room making sure I was OK," he wrote. "It got to be a little much at times, especially when entering and exiting the shower."
At an investment conference in Chicago this summer, Gross donned sunglasses inside the venue and joked he'd become "a 70-year-old version of Justin Bieber."
But there were few signs that his standing within the firm was rapidly fraying.
A few days after the Chicago event, Hodge spoke reverentially about Gross. "Through the Total Return Fund and other strategies, Bill has created more value for more investors than anyone in the history of our industry," Hodge said.
Some industry sources speculated on Friday that Gross' departure may pave the way for the return of El-Erian, who has been working part time as Allianz' chief economic adviser, to the firm.
In an interview on Monday, El-Erian declined to say whether he had any such plans.
"If you ask me for the next six months, I have absolutely nothing in addition to what I am doing," El-Erian said.