When a financial genius invests in you, that’s usually a good sign. This seemed to be the case recently when George Soros invested $500 million with Bill Gross at the latter’s new firm. The Soros money went into a separate account that follows Gross’ new Janus Global Unconstrained fund.
Turns out that Gross’ returns since his arrival at Janus in late September are slightly negative, in keeping with his sub-par performance in his last days at his old fund house, Pimco. But since he started at his new employer, his former flagship fund, Pimco Total Return, has outpaced his Janus showing, up 3.5%.
Has Gross, whose long-term record is extraordinary, lost his touch? Soros might have made a bad bet here.
Sure, a lot of folks don’t particularly care for financier and philanthropist Soros. Those on the political right are specifically annoyed that he leans to the left and that he prides himself on his progressive views (“a prominent international supporter of democratic ideals and causes for more than 30 years,” according to the Soros website).
Few doubt his abilities to make, earn, manage and control money. Everyday investors might know Oracle of Omaha Warren Buffett better. But Soros, along with the right-leaning oil magnets Charles and David Koch, appear to be among the largest benefactors of political causes.
We all seem to believe that money rules politics and big money rules bigger politics. Now put politics aside. Soros is one astute investor.
When this legendary financier recently made a $500 million bet on the future performance of Bill Gross at Janus Capital Group, it provided a vote of confidence for the onetime “bond king” of Pacific Investment Management Co., aka Pimco. So did reports of torrents of fresh investment coming into his Janus fund. Last fall, when Gross resigned from Pimco, it was one of the messiest exits from a major investment house in memory.
He now manages assets for Soros Fund Management, Soros’ private investment vehicle, a job that Gross calls an honor.
What gives? The Soros investment is small relative to Gross’ former gig at Pimco – though it does represent a significant amount compared with the total Janus holdings. Using a separate account also insulates Soros from any defections by Janus investors, if Gross’ new fund runs into the persistent under-performance problems besetting Pimco Total Return on the latter part of his watch – lagging behind the Barclays U.S. Aggregate Bond Index, the standard fixed-income benchmark.
Disturbingly, much of the $1 billion-plus in new investments that flooded Gross’ Janus fund came from Gross himself. A Wall Street Journal article reported that Gross pumped $700 million into his new Janus fund. The nature of the Gross-Soros relationship is fuzzy.
Another WSJ story adds that Gross and Soros have met “but don’t have a close relationship.” That might change. You usually want to be close with someone who controls $500 million of your money.
Likely, the Soros move hinges a little on the bond king’s reputation. Gross, with Pimco for almost four decades, managed $293 billion in Total Return alone at its peak in August 2013, and oversaw billions more in Pimco. Reuters reported that $38 billion left Pimco in the two months following Gross’ departure.
Almost 20 years after its publication, his Everything You’ve Heard About Investing Is Wrong remains a solid seller, once critically applauded as “a surprisingly entertaining and thought-provoking book.” For years, the financial industry hung on every word Gross uttered.
Before his departure from Pimco, though, poor investment performance, months of hemorrhaging of fund capital as investors fled and even Gross’ erratic public behavior caused tension.
Last June, Gross donned sunglasses to deliver a disjointed (if not oddball) speech at the Morningstar Investment Conference in Chicago. He likened himself to Gen. George Patton and pop singer Justin Bieber, then joked that he ought to control the media with brainwashing techniques from the 1962 assassination movie The Manchurian Candidate.
Mohamed El-Erian, Pimco’s former chief executive officer, left the company in January 2014, reportedly over personality clashes with Gross. Other key personnel also sought employment elsewhere.
To the best of my knowledge, Gross walked out of Pimco with no fanfare, unless you count the announcement soon after that the Securities and Exchange Commission was investigating whether Pimco inflated returns on one of its exchange-traded funds.
Except for that, it’s just how I retired from teaching: No golden parachute, bonus or party. Unlike Gross and probably like most of you who recently retired, I did not become a billionaire at my old job. Or at my next one.
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Phillip Q. Shrotman is founder and president of Principal Planning Service, Inc. in Long Beach, Calif. He was a professor in the Business Division at Long Beach City College for over 29 years, where he held the position as Coordinator for Financial Planning and Insurance for the college. He holds a Community College Instructors Credential from the University of California at Los Angeles and a master’s from the University of San Francisco. He also holds the profession designations of General Securities Principal of the Financial Industry Regulatory Authority (FINRA), Series 7 and 24. He has appeared as a guest on KABC Talk Radio and various television and radio programs.
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