Challenge awaits bond star Gross at team-spirited Janus
Investors hope the Bond King can remake himself as a team player.
Bill Gross last week abruptly left Newport Beach, California-based Pimco, the firm he built into a bond giant, to join Janus Capital Group (JNS.N), a small Denver firm that touts on its website how its friendly, team-oriented culture creates "strong collaborators."
While investors are certainly excited about the move - Janus shares are up 30 percent since the announcement - some wonder just how much easily the outspoken, 70-year-old Gross will fit in at the firm led by Pimco veteran Richard Weil. Weil hired Gross at the urging of former Pimco chief executive officer Bill Thompson, according to two people familiar with the matter.
But Janus already has a bond leader in Gibson Smith, who has less star power than Gross but has quietly delivered better performance in recent years. He is said to work well with Janus CEO Weil, and has emphasized a team approach, which could be a contrast with the autocratic style that Gross showed at Pimco.
Kevin Mahn, who helps manage $2 billion as chief investment officer at Hennion & Walsh, a Parsippany, New Jersey-based wealth management firm, questions if Gross can co-exist with Smith and how much oversight Gross may face.
"It's setting the stage for a culture clash," Mahn said. "Here's a guy who was at rock-star status, and Pimco was synonymous with his name. Now he's moving to a different firm and he's not necessarily going to be the same person as he was," Mahn said.
Michael Cuggino, president of the $7.5 billion Permanent Portfolio Family of Funds in San Francisco, which owns Janus shares, said Weil and the rest of Janus' management will be judged in part on how smoothly Gross transitions to their firm. Key will be for Gross to show he can work well with others and for Janus to avoid the bad publicity that marred Gross's last months at Pimco, including his falling-out with his one-time successor Mohamed El-Erian, who left earlier this year.
"If they bring in Gross and it's a disaster and all over the front pages because they didn't get along, like with El-Erian, that's not good," Cuggino said.
Gross has been famously short-tempered at work, slamming desk drawers and discouraging socializing. He once fumed at an employee for attending an industry conference: "I don't want you to attend the conference, I want you to be a speaker at the conference."
Janus will report third-quarter results on Oct. 23.
Weil had been Pimco's chief operating officer for ten years before joining Janus in 2010. Weil and Gross "were never soul mates the way he was with Mohamed," said John Brynjolfsson, chief investment officer of hedge fund Armored Wolf in Irvine, California, and a former managing director at Pimco from 1989 to 2008.
"There was never that chemistry. It's not like they would form a coalition after their time at Pimco or see them going on vacations together," Brynjolfsson said.
Gross has not been available for interviews, nor has Thompson. Smith has declined interview requests as have other Janus executives including Weil. A Janus spokesman said on Friday that Gross will report directly to Weil.
In press statements issued on Sept 26, the day Gross's move was announced, Janus said he will remain in Newport Beach and will take over the $13 million Janus Unconstrained Bond Fund, which will change its name to the Janus Global Unconstrained Bond Fund (JUCAX.O). Gross also will work up some related business that "will be separate and complementary" to Smith's, Janus said.
Gross isn't wasting time in jumping in: he will release his first outlook with Janus, titled "Stayin' Alive," on Oct. 9, after a webcast for institutional investors with Weil on the global unconstrained bond strategy, according to an invitation to the event seen by Reuters on Friday.
SMALL BUT NIMBLE
Smith, who is keeping his title as Janus' fixed income chief investment officer, will focus on corporate bonds while Gross will stick with the "macro" role he played at Pimco making big-picture bets on interest rates and the global economy.
A half-dozen people who have worked with Smith or know him well say he collaborates closely with a group of analysts and traders, many of whom he recruited since he became Janus' bond chief in 2006. These people said Weil and Smith work well together.
Smith runs a smaller bond operation at Janus, with $31.4 billion in assets at June 30, compared with the $222 billion that Gross oversaw at Pimco Total Return Fund (PTTRX.O) alone. Yet Smith's steady returns compare favorably to Gross' recent uneven performance.
The Janus Flexible Bond Fund, the firm's biggest bond fund at $7.1 billion, has earned a 3.85 percent return this year through Sept. 30. This compared with the Pimco Total Return Fund's 3.33 percent return over the same period. The Janus fund has also outperformed by a similar level over a five-year period, according to data from Lipper, a Thomson Reuters unit.
Janus shares initially shot up 43 percent on Sept 26, hitting a 52-week high of $15.95 after the Gross announcement. They closed at $14.49 on Friday, up 30 percent from before Gross joined the firm.
In a report issued Oct. 2 Morningstar analyst Sumit Desai wrote that Janus will need to provide enough support such as traders, research analysts portfolio managers for Gross to handle an influx of investor cash. Janus will never likely provide as much support as Pimco, Desai wrote, "raising the question of how successful Gross can be with fewer resources."
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