PIMCO’s Gross to El-Erian: Cmon, Tell Us Why You Left

Pimco’s Bill Gross spoke with Bloomberg Television’s Trish Regan today and opened up about Mohamed El-Erian’s departure and reflects on his personal role at the company.

Gross explained he was “extremely disappointed” in El-Erian reluctance to speak up and explain why he resigned: “He hasn’t spoken up, and that’s a mystery to us and quite frankly an extreme disappointment….He simply said that he wasn’t the man to take the company forward. And he constantly repeated that without explaining it.”

Gross said “I thought I knew him better.”

On reexamining himself, Gross said, “I think for the most part I’m the person that I thought I was, but I’m willing to say that in this environment, in this new generation with our – with our DCIOs that it’s important to be less of a – of a strong leader and – and more of an inclusive type of leader.”

Highlights include:

*MEDIA ATTENTION ON PIMCO ‘SILLY’ IN PAST MONTHS
*EL-ERIAN SHOULD HAVE SPOKEN UP, DISAPPOINTED BY HIS SILENCE
*EL-ERIAN SILENCE ON DEPARTURE A MYSTERY TO HIM
*GROSS: ‘I THOUGHT I KNEW HIM BETTER’
*FUTURE IS BETTER NOW
*WILL BE AT PIMCO FOR A LONG TIME
*IMPRESSION OF ME AS A DICTATOR CAME FROM EX-EMPLOYEES
*FOR THE MOST PART, ‘I’M THE PERSON I THOUGHT I WAS’

TRISH REGAN: Bill, let me – let me ask you, there’s a cover article coming out on you tomorrow in Businessweek magazine, and it basically looks at the behind the scenes drama, if you would, of what was going on with you and Mohamed El-Erian prior to his departure. There was a lot of media frenzy in the days following that as soon as the news was announced that he was leaving. And there was talk of all kinds of drama. Do you think the media got that right? How would you characterize how you were treated by the media at that time?

BILL GROSS: Well, let me give you my take. I think this whole past two months has been sort of silly really. Breaking news. Gross gets made once in a while. Not quite grub for Lindsay Lohan or Chris Christie types of headlines. The critical link I think in terms of what you talked about and what the article talks about was did Mohamed leave because Gross gets mad sometimes. And the answer is no.

It would have been helpful from my standpoint and from the company’s standpoint for Mohamed to have spoken up and to have cleared the air and supported the company he so proudly helped build these past six months. And he hasn’t. He hasn’t spoken up, and that’s a mystery to us and quite frankly an extreme disappointment. But we move on. We’ve got a new structure, a new deputy CIO structure that we think does even better than what we had in the past.

REGAN: Any sense of why he didn’t speak up? Does this get at maybe some of the issues that you guys were dealing with internally?

GROSS: Well I don’t think so. And it’s a mystery to us. He simply said that he wasn’t the man to take the company forward. And he constantly repeated that without explaining it. He didn’t really say that he didn’t have the qualifications. Obviously he did. He didn’t really say that he had lost interest. Obviously he’s still interested in the markets. He simply said he wasn’t the person, and that’s a mystery.

And the additional mystery, as I’ve mentioned, is the fact that he hasn’t spoken up. I would simply say, come on Mohamed. Tell us why. Because the furor over the past two months in terms of the headlines really are quite exaggerated. And it’s not indicative of what this company is, what this company was and what this company will be in terms of our future structure.

REGAN: Bill, how has that made you feel knowing that this is a guy that you worked alongside and really was a trusted partner, your co-CIO, the idea that he leaves and doesn’t say anything?

GROSS: Well as I said, quite and extremely disappointed. I thought I knew him better. Basically PIMCO and the executive committee hired him twice. We hired him in the late 1990s. He was working with various – various markets. We hired him again to be the co-CIO and the co-CEO about six or seven years ago. And we hired him quite frankly to be my successor. So does that make me mad? Yes, that makes me mad.

Does that make me disillusioned? Not really, because like I said we have a – we have a future that’s now probably better than what we had in the past. We’ve got an investment committee that’s stocked with market experts, whether it’s equity, whether it’s corporate bonds, whether it’s diversified income. These are people with Morningstar manager of the year awards. And so this is a different type of company that is inclusive, that, yes, hopefully grows, responds to in terms of allowing discussion and allowing even potential disagreement going forward so that we can come up with our famous alpha generation for – for portfolios going forward.

Let me just – give me one chance here, Trish, to mention something. We’ve got an ad coming out, and here it is. It basically talks about the total return fund and it says 25 years, $31 billion. Over – over the last 25 years, the total return fund has in addition to market – market rewards has rewarded investors by $31 billion, over a billion dollars a year in terms of extra return. And so that’s the foundation of this company and that’s the foundation of – of where we’re going forward. I’m going to be here for a long time. We’ve got a new structure in terms of the investment committee and in terms of our deputy CIOs. We’ve got a new president. We’ve got a new CEO. This company is going forward. And we don’t want to look at the past. We want to (inaudible).

REGAN: No, you want to move forward. I understand that. So at some point – at some point we all retire. You’ll retire some day. What happens to PIMCO, the film that – the firm that you started in 1971, the firm that you have built? What happens when you do retire?

GROSS: Well that – that point I hope is some point in the distant future. I used Dan Fuss as Loomis Sayles as my model, as my icon. He’s 80 years old and he’s still plugging away. And I figure if Dan Fuss can do it then I can do it. That’s 10 years forward. In the meantime what we’re doing is obviously developing talent. We’ve got our deputy CIOs. There are six of them. They’re additional people that could fill the slot going forward.

It’s not quite a competition a la Jamie Dimon and Sandy Weill, but it is something where we’re developing talent for the future. And so it’s Gross and deputy CIOs and the entire staff of PIMCO that basically works from the tops down and works from the bottoms up and produces alpha like I talked about in terms of the total return fund that comes in at a billion dollars per year in terms of extra reward.

REGAN: Bill, they say you’re tough to work for. You’re tough to work with. You mentioned in this article that some people have referred to you as a dictator. Why is there that perception of you?

GROSS: Well, I think that came – I’m going to give you an honest answer. I think that came from disillusioned ex-PIMCO people, PIMCO people that have been either retired or – or laid off, so to speak. And that’s their personal impression. What’s my impression? What’s the author’s impression of this article in terms of the Bloomberg story that’s coming out? Perhaps a little of that. I think a leader has to be forceful at times, has to be dynamic at times.

But on the other hand, a leader has to allow for an inclusiveness. A leader has to allow for discussion in order to promote and to elevate the best ideas. Have I done that in the past? Perhaps not perfectly, but I would point to the PIMCO record. If I hadn’t done it in the past, if we hadn’t done it right in the past – for the past 35 years, where would $2 trillion have come from? So I can be critical of myself. The article can be critical of me to some extent, and certainly ex-employees with an ax can be critical of me. But I think we’ve been doing it pretty well. We’re going to do it better going forward.

REGAN: In terms of the relationship that you had with Mohamed, do you think at all that it was a mistake to put so much emphasis on one other person? You now have six different deputies. Does it help to diversify the management structure?

GROSS: Well I think it does going forward. There was a point when I was 63 or 64 and our ex-CEO Bill Thompson was 63 or 64 and we thought it was our duty, and it was, to basically write a will to basically find our successors going forward. That’s the obligation basically of all leaders, of all CIOs and CEOs. In this business however, as we found out, I’m still around for six years. I’m still engaged. I’m still talking too fast, as is apparent in the TV. But I got some life left in me. And so was it a little early to bring in one person? I’d say it probably was. Is it better to have a diversified platform of six or more in terms of potential successors five or 10 years down the road? I would say that’s a better plan.

REGAN: So are these going to be the guys that are out there traveling for you, talking to clients? Because that’s a lot of what Mohamed did, right?

GROSS: Mohamed did that, and he did it well. He was a frequent traveler. Thirty to 40 percent of his time was traveling and he visited with important clients on a global basis. He was a participant in many forums on a global basis, and that’s what’s a – that’s what a CEO should do. And he did that very well. A CIO, importantly, needs to be more at home as opposed to out there on a global type of basis, and that was the role I fulfilled and the role hopefully that we’re going to focus on going forward, is this stay at home to manage alpha, to promote results as opposed to a constant circling the globe and – and – and promoting other things.

REGAN: Bill, I’ll let you in on – I don’t know if you’ve seen the title of this article. It’s very much tongue in cheek. There’s a picture of you and you say – there’s a quote from you, so to speak. Am I really such a jerk? Look, I know you’re not a jerk. We all know you’re not a jerk. But you’ve got to fight this perception right now in part because of what happened. Is there anything that you would change in terms of how this all unfolded?

GROSS: Well of course. And I spoke in the article to the fact that something like this over the past two or three months causes one or should cause one to reexamine yourself, the Michael Jackson man in the mirror in this particular case. Are you the person you thought you were or are you the person that others thought you were?

REGAN: And what’s your answer to that?

GROSS: Well, I think for the most part I’m the person that I thought I was, but I’m willing – I’m willing to say that in this environment, in this new generation with our – with our DCIOs that it’s important to be less of a – of a strong leader and – and more of an inclusive type of leader. And so I look in the mirror and I like – I like my hair. It’s nice and thick, as the article suggested. But can it be changed? Can it be a different stye? Can it be trimmed at a certain level? Of course it can, and that’s what I’m trying to do.

REGAN: What is it that you would change about yourself besides your hair?

GROSS: To try to – to try and temper it a little bit. It is true that – it is true that at certain points I’ve raised my voice. Is that a bad thing? Not all of the time. Quite frankly you don’t get a pearl unless you have a little grain of sand within that oyster. And so a little bit of sand, a little bit of temper, a little bit of noise, I think it’s incumbent upon a leader to promote that, but not a lot. And so I’m examining myself from that standpoint.

Video here.

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