THE COVENANT KING
How one man made a market, built an empire and lost everything
By Mary Childs
You may have heard of Bill Gross. Or maybe the name rings a bell. If not, you or someone you know probably had direct or indirect exposure to their Total Return bond fund, which they’ve managed for decades. By 2013, Total Return had amassed nearly $500 billion in assets. Gross took home $300 million in one year alone and had $700 million of his own money left over to invest in a new fund he started after leaving Total Return.
Fortune magazine crowned Gross “the Bond king” in 2002. The rating and research agency Morningstar named him Fixed Income Manager of the Year in 1998, 2000 and 2007, and then of the decade: the Academy Awards of the fund industry. He was ubiquitous on CNBC, Bloomberg Television and in the financial press, with investors hanging on to his statements.
And then he faltered. His employer, Allianz’s Pacific Investment Management Company (known by its acronym Pimco), dumped him unceremoniously. His new fund was a failure. His wife has left him. Increasingly alienated and embittered, Gross withdrew into the world of golf and oblivion, a final chapter he certainly would never have chosen.
Mary Childs, who covered Gross and the bond world for Bloomberg News, now works for NPR’s Planet Money. Her coverage in “The Bond King,” her new biography of Gross, is admirably thorough. She seems to have interviewed or attempted to interview almost everyone who has worked with him over the years, dutifully telling of his rise to the top of the fund world.
Gross was born in Ohio in 1944 to what he describes as “cold Canadian parents” (his mother never stopped criticizing; his father didn’t want to play baseball with him), attended Duke and UCLA, where he earned an MBA. served in the Navy during the Vietnam War and played blackjack in Las Vegas. He claimed his gambling skills improved his knowledge of risk, which he put to good use in the once-tough bond market. His big discovery (although he wasn’t the only one to realize it) was that bonds could be traded aggressively in addition to generating interest payments. Hence the name “Total Return” – interest payments plus capital gains from purchases and sales.
Childs’ story picks up steam in 2007 when Mohamed El-Erian, a former Pimco executive, returned to the company after a 20-month stint managing the endowment at Harvard. He was named co-chief executive and co-chief investment officer and was unofficially considered Gross’ eventual successor.
As should have been clear, everything with Gross – who was used to being the star of the show – was doomed to fail. When El-Erian succeeded (or worse, earned personality awards), Gross boiled with envy; if El-Erian failed, Gross subjected him to scathing criticism. Gross became increasingly paranoid, obsessed with exposing El-Erian moles he believed were undermining him, and leaked to the press.
In a bizarre episode, Gross pulled his car to the side of a highway and impulsively called a Reuters reporter, Jennifer Ablan. He told her—officially—that he knew El-Erian had undermined him because he had secretly tapped El-Erian’s phone calls. “I know El-Erian talked to you” and The Wall Street Journal, he told her. Reuters immediately printed the call, leaving Gross looking “unhinged,” as one of his colleagues put it. Pimco issued a statement denying Gross had made such comments, but according to Childs, Gross then promised the company’s executive committee that he would no longer comment on El-Erian in the press. An enraged El-Erian eventually resigned in January 2014.
A few months later, at a Morningstar investment conference, Gross appeared onstage in sunglasses and called himself “a Wall Street version of Justin Bieber.” He devoted a section of his April 2014 newsletter to discussing his belief that his late cat Bob watched him on television and also while he was getting in and out of the shower. “I’m not particularly shy, but why did a cat named Bob always check on me?”
Childs wisely avoids diagnosing Gross’s mood, noting that “about half of the grassroots publicly wondered if Gross had lost it.” His colleagues tried to explain his behavior to increasingly anxious customers. “He’s always been crazy. haha! Just an eccentric man.”
At other times, Gross seemed perfectly clear in his determination to stay in power even when his investment performance faltered. But in September 2014, his superiors at Allianz were willing to fire him. Before they could trade, however, Gross thwarted them by signing up with rival Janus Capital.
Childs reports that he subsequently spent much of his time obsessing over his former co-workers and plotting revenge. Every day at 3pm, he monitored the performance of his new fund and compared it to that of Total Return. “I have a happy night if I do better, and a less fortunate night if I don’t do better,” he said. Predictably, that was a recipe for misery. He sued Pimco. When his wife filed for divorce, he fought bitterly. In one of his newsletters, he labeled his youngest son a disappointment and a ‘black sheep’, apparently because he had tattoos. In a play to show compassion, he told Bloomberg TV that he had been diagnosed with Asperger’s.
After dismal results in his new fund, Gross retired in 2019 — but he’s barely “lost everything,” as the book’s subtitle suggests; Forbes estimated his net worth at $2.6 billion this year. A comment he made in one of his 1993 newsletters proved prescient: “Excellence for most of us only blooms and blooms for a short period of time.”
“The world he built was cruel, petty, filled with boys who drew wings from flies — but it had been his,” Childs writes. “In the end, it had its brutality aimed at him.”
