This week, we speak with “Bond King” Bill Gross, who has been a pioneer in fixed income investing for 43 years. Gross co-founded Pacific Investment Management Co. in 1971 and served as managing director and its chief investment officer. Gross managed PIMCO’s Total Return Fund, which at $293B was the world’s largest mutual fund. Gross advised Treasury on the role of subprime mortgage bonds, and was named Morningstar’s Fund Manager of Decade in 2010. He is the author of several books, including the just-published “I’m Still Standing: Bond King Bill Gross and the PIMCO Express.”
In the 1970s, the ERISA laws mandated diversification among asset managers, including geographically. The Newport Beach, Californa-based firm won AT&T’s pension fund as their first big client, and the floodgates opened.
We discuss his Investment Outlooks — IOs — which he penned each month as the firm’s way to “Say Hello” to the industry. They became an entree to meeting new clients.
We discuss the new book from Mary Child (podcast here) titled “The Bond King: How One Man Made a Market, Built an Empire, and Lost It All.” Gross cooperated with the book, answering questions and assisting in the fact-checking process.
He strongly disagrees with the accusation PIMCO manipulated the Treasury Department during the Financial Crisis: “We Didn’t Bully Anybody.” He notes that neither he nor the firm ever called anyone at Treasury or ever threatened to submarine the market. PIMCO was the largest holder of mortgage-backed bonds via Fannie Mae and Freddie Mac. Sure, they were the 800-pound gorilla in mortgage bonds, but Gross claims that was a strategic, not political advantage for the firm.
Gross tells how traumatic it was to get fired after 43 years, and he noted, “When you kill the King you better make sure he is dead.” He says he was never erratic but “I always was a quirky character.”
He blames two factors for his firing: First, he said he was in favor of low fees, but PIMCO wanted to raise fees, including various “2 & 20” funds. But the big reason according to Gross was the gigantic bonuses he and Mohammed El Arian were getting. If Gross was fired, (El Arian had already moved on), that’s half a billion dollars in annual bonuses to be divvied up among the rest of the senior leadership. “I was 72 and they thought it was time for me to go.”
We also discuss the state of the bond market now — he believes the Fed is “way behind the curve” and that 4-5% Inflation is “baked into the cake for the next few years.” He believes that 50 or 100 bps is about as much as the economy can take. “Bonds are definitely something to avoid” Gross observes.
A list of his favorite books is here; A transcript of our conversation is available here Monday.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
Be sure to check out our Masters in Business next week with Jonathan Lavine, co-managing partner of Bain Capital, and Bain Capital Credit’s Cheif Investment Officer. He is co-chair of the Board of Trustees of Columbia University.
Bill Gross Favorite Books
An American Childhood by Annie Dillard
Pilgrim at Tinker Creek by Annie Dillard
The Age of AI: And Our Human Future by Henry A Kissinger, Eric Schmidt, and Daniel Huttenlocher
Nothing to Be Frightened Of by Julian Barnes
Bill Gross Authored Books
I’m Still Standing: Bond King Bill Gross and the PIMCO Express by William Gross
Bill Gross on Investing by William Gross
Everything You’ve Heard About Investing Is Wrong!: How to Profit in the Coming Post-Bull Markets by Bill Gross
Books Barry Mentioned
The Bond King: How One Man Made a Market, Built an Empire, and Lost It All by Mary Childs