El-Erian Exit Is Pimco Distraction as Gross Seeks to Save Legacy

(Bloomberg) -- Bill Gross, in an investment outlook in April entitled “Man in the Mirror,” questioned whether he was truly a great investor as he pondered his legacy in a new era of shrinking bond returns.

Almost a year later, his largest fund, the $236 billion Pimco Total Return, is trailing rivals, prompting clients to pull money for 10 straight months. On top of that, the 69-year- old is entangled in an ugly split from his former heir apparent Mohamed El-Erian, with allegations of phone surveillance and public humiliations, that has painted a picture of Gross as an autocratic leader struggling to maintain his composure.

The departure of El-Erian and other top executives in the past year has become a distraction at a critical time for Pacific Investment Management Co., the Newport Beach, California firm he co-founded in 1971 and built into the world’s largest fixed-income manager amid a three-decade rally in bonds. As rising interest rates worldwide have prompted investors to flee bond strategies over the past year, Gross’s ability to improve returns is crucial for Pimco to reverse client redemptions.

“This clearly has the potential for being distracting,” said Michael Rosen, CIO at Angeles Investment Advisors LLC, a Santa Monica, California-based consultant to institutions. “We prefer our portfolio managers to simply manage portfolios and not spend time thinking about what’s being said in the media.”

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