After the sudden resignation of co-founder and chief investment
officer Bill Gross, money-management firm Pacific Investment Management Co. or PIMCO is in big trouble. PIMCO is one of the world's biggest investment management firms, focusing on bonds. Gross was a major driver of the firm's success. The Total Return Fund, which he launched in 1987, was one of the top performing funds in the financial sector and stayed strong even during the 2008 recession. With Gross's departure, investors are losing faith in the firm's capabilities and are absconding with their investments in droves.
Although senior management does not believe the majority of
clients will jump ship, investors have already withdrawn 10 billion dollars last week alone. PIMCO has already prepared a 60B dollar fund to cover future withdrawals. In addition, PIMCO's owner Allianz SE, has publicly stated they will not interfere with the firm's day to day activities. However, these recent withdrawals, albeit very large, are also indicative of the firm's internal troubles in the past year, in which investors withdrew 70B. Gross had been very uncompromising in his running of the firm and many other executives as well as the owners, Allianz, had wanted him to retire. Eventually a disgruntled Gross left the firm to head up a smaller one, Janus.
PIMCO's reputation has been battered over these past years.
This case is just another example of how certain managers can make or break a firm. Investor confidence can only be won with performance and people. Investors who were brought to the firm by Gross's capabilities immediately left when he resigned. An icon such as Gross, who was regarded on Wall Street as the "bond king", commanded immense respect and confidence. It will be interesting to see whether PIMCO can rebound from this major loss or if it will steadily decline and fizzle out.
- William Zhou