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Dirty laundry

8 October 2015 By Richard Beales

Bill Gross has come out swinging at last. The former bond-fund star at Pacific Investment Management, the $1.5 trillion asset-management firm owned by German insurer Allianz, has sued both companies in the United States over his exit in September last year. He alleges greed among more junior staff led to a plot to force him out.

Gross, who now runs a fund for Janus Capital, is asking for at least $200 million. He hasn’t yet included any of his former colleagues in his lawsuit, which has room for 100 as-yet-unidentified defendants to be added. But in his narrative, he is naming names.

He says Mohamed El-Erian, the Pimco chief executive who quit early last year after returning to the company following a stint running Harvard University’s endowment, wanted Pimco to make riskier investments and charge higher fees. But Gross claims El-Erian was frightened of taking responsibility for decisions.

Meanwhile, the legal complaint asserts that a plan to oust Gross was “hatched” by Dan Ivascyn, who later took over as Pimco’s chief investment officer. Gross asserts that when El-Erian departed Andrew Balls, a Pimco managing director and former Financial Times journalist, was involved in leaking stories that cast El-Erian in a good light and Gross in a bad one.

It’s true that the “bond king,” as Gross is sometimes nicknamed, lost the publicity war at the time of his departure from Pimco. Yet the notion that his management style was at least partly to blame rings true. The founders of successful companies – especially those still handed a whopping 20 percent of the bonus pool available, as Gross was at Pimco – can outstay their welcome when their creations outgrow one person’s dominating influence.

The Gross complaint suggests his former colleagues were not blameless. Yet it’s also difficult to have much sympathy for someone paid $300 million in 2013 who is claiming he was promised $250 million the following year and collected only a small part of it before quitting.

No one comes out looking good. It’s also hard to imagine his new employer appreciating the distraction that Gross’s lawsuit will bring. At least he has now got his umbrage off his chest, in lurid detail. Whether the personal barbs are also effective legal ones is another question.

 

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