Grossing Up for Success

Tyrant King

Most professional investors believe that Bill Gross has been the all-time greatest fixed income investor.  We would agree.  He co-founded PIMCO Investment Management in 1976 and has been the key driver for the firm as they grew to $2 trillion in assets under management.  Last Friday Bill Gross resigned from PIMCO, just prior to his planned termination by the board.  What happened?  Is there a lesson here?

We first met Bill in 1979 while we were managing the RJ Reynolds pension fund.  He had co-founded PIMCO three years earlier, had a few hundred million under management, and had only one institutional account, the AT&T pension fund.  Gene Hoots and RJR’s consultant Jim Hamilton met with Gross and his partners at their office in Newport Beach.  Gene was impressed but worried about presenting these young thirty-something investors to the RJR finance committee, especially with Gross attributing much of their risk management success to his experience as a blackjack professional in Las Vegas.  PIMCO was presented, made an excellent presentation, and were given a $10 million bond account.

That same year, 1979, Gene and I started our partnership that eventually became CornerCap.  While Gross was almost single-handedly taking PIMCO to $2 trillion in assets under management, we had a strong team at CornerCap helping to take us to about $1 billion.  We find comparisons like this both humbling and healthy.

With all of the success and money that anyone should ever dream of achieving, what is Bill Gross hoping to achieve?  We have all witnessed personalities like this in the past -- someone who appears to never have enough.  Gene described it very well in an email to me yesterday.

“As we get older, our personality qualities tend to be magnified.  My guess is that the drive and dedication that got Bill to the top of the heap is the same quality that got so magnified that ‘drive’ turned into ‘tyranny.’  Success is very hard to live with – not least because we tend to believe the stuff that people say about us.”

Bill Gross is 70 years old and believes that he should not be challenged as the ruler of PIMCO or the King of Bond Investing.  He can no longer be the former but maybe with enough passion and energy he can remain the latter.  The power of his reputation may nourish his un-retiring ego for a while, but his advancing age will force more humility and transition to newly rising stars.

Gene and I have been fortunate to observe and learn from Bill Gross’ 40-plus year investing career.  To the best of our ability, we have shared what we have learned with the other professionals in the firm, and we have brought in people with skills to augment our own.  Neither of us have any plans for slowing down or retiring.  But for this firm and for our clients, we realize that the younger and evolving new owner/employees of the firm will be able to deliver a greater and longer-term success.