Pimco settles suit with Bill Gross
‘Bond king’ reaches deal over his exit from the Newport Beach firm he co-founded.
Investment manager Bill Gross has reached a settlement with Pacific Investment Management Co., the Newport Beach investment giant he co-founded and led for decades, then sued in 2015 after an acrimonious split.
In a joint news release Monday, Gross and Pimco executives called the settlement amicable but did not disclose terms. Gross had sought damages of more than $200 million.
However, sources familiar with the terms of the agreement said Pimco would pay $81 million, with all of that sum — plus $19 million from Gross himself — going to the William and Sue Gross Family Foundation, which donates to an array of causes.
The release noted that “any proceeds from the suit will be donated to charity,” something Gross had promised to do since filing the suit.
“Pimco has always been family to me, and, like any family, sometimes there are disagreements. I’m glad that we have had the opportunity to work through those,” Gross, 72, said in Monday’s statement.
After the settlement, Pimco said it would take several steps to preserve “the legacy and contributions” of Gross and other founders of the investment firm.
That includes dedicating a “founders room” at Pimco headquarters in Newport Beach, naming Gross a director emeritus of the Pimco Foundation and establishing the Bill Gross Award “in
recognition of his careerlong dedication to ... charitable endeavors.”
The settlement marks an abrupt shift from the bitter tone of Gross’ lawsuit and Pimco’s response.
Gross, who alleged breach of contract and other causes of action, accused a handful of other Pimco executives of pushing him out because of their “lust for power, greed and a desire to improve their own financial position,” according to the Orange County Superior Court action. Pimco responded by calling Gross an abusive and disruptive force.
Gross and others founded Pimco in 1971, growing it to become one of the world’s largest money managers with a focus on bond investments. It has been owned since 2000 by German insurance firm Allianz.
With a track record of market-beating returns, Gross came to be known as the bond king. But in 2013, a year of uncharacteristically poor returns, investors pulled tens of billions of dollars from Pimco’s marquee bond fund. Then, in January 2014, Mohamed El-Erian — Gross’ heir apparent and the company’s chief executive and co-chief investment office — resigned.
Investors continued to move money to other firms — including downtown Los Angeles bond firms DoubleLine Capital and Trust Co. of the West — then accelerated their withdrawals after Gross abruptly left Pimco in September 2014 and moved to competing money manager Janus Capital Group.
At its peak, Pimco managed more than $2 trillion in assets. By the middle of last year, that had sunk to about $1.4 trillion. In response, the company in June announced plans to lay off dozens of workers and close several stock funds.
By Gross’ own account, as told in his lawsuit, the trouble had actually started in 2007 when the firm rehired El-Erian, a former Pimco executive, as part of a corporate succession plan
Gross supported that plan at first but then balked at plans to move Pimco away from its focus on bonds and offer a variety of other investment types, according to the suit.
Ultimately, Gross portrayed himself as the victim of an organized campaign by a “cabal” of younger executives who wanted to remove him from the firm and transform it into a company focused on riskier investments.
He also alleged that the executives wanted to increase their own compensation by forcing Gross out and splitting the more than $200 million in bonuses he estimated he was due to get in 2014.
“As long as Mr. Gross remained at the company he founded, these younger executives were unable to transform Pimco, increasing client risk and their own compensation,” according to the suit. “As a consequence, Mr. Gross became the target of a power struggle within Pimco, a struggle that eventually led to his wrongful and illegal ouster from the company.”
In its response, Pimco said Gross had tried to sabotage El-Erian and others and was abusive and disruptive. The company called the money manager’s lawsuit an attempt by Gross “to salvage a personal legacy that he undermined with his own self-destructive behavior during his final year at Pimco.”
The now-settled suit should be one less distraction for Pimco, which has had a new CEO since November and appears to have stanched the f low of investor withdrawals. In last year’s third quarter, the firm gained assets, snapping a streak of 12 consecutive quarters in which investors pulled out more than they put in.
The firm’s Pimco Income Fund, now its largest bond fund after overtaking the firm’s marquee Total Return fund, holds $75.4 billion in assets, up nearly $10 billion over the last six months alone.
That fund has lately outperformed its rivals, posting returns of 8.7% last year, according to Morningstar. Still, the firm ended the year down more than $500 billion from its peak.
Janus, meanwhile, ended the year with $191.9 billion in assets under management, up only slightly from a year earlier.
The fund managed by Gross, the Janus Global Unconstrained Bond Fund, holds just $1.9 billion, a tiny amount compared with the funds he used to manage. It posted a return of 4.9% last year, according to Morningstar.