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Gross Files Suit, Offers Version of PIMCO Events

In the latest chapter of the fallout of portfolio manager Bill Gross’s exit from PIMCO, Gross is suing the asset manager for $200 million. Gross filed a complaint last week alleging that, “[d]riven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency, a cabal of [PIMCO] managing directors plotted to drive founder Bill Gross out of PIMCO in order to take, without compensation, Gross's percentage ownership in the profitability of PIMCO.” The complaint reveals that Gross received twenty percent of the firm’s entire profit sharing bonus pool each year.

The complaint also offers details into Gross’ view of his relationship with Mohmmed El-Erian, the former CEO of PIMCO. According to Gross, the relationship soured when “El-Erian sought to force PIMCO out of its core focus on bonds and related fixed income securities and instead become a general-purpose investment management firm offering stocks, commodities, real estate, and hedge fund-like products to investors” which Gross compared “to the extensive and varied menu at a Cheesecake Factory restaurant.” Gross alleges that he offered to step back from his role from PIMCO management committees in order to maintain El-Erian as a successor, but that El-Erian “was angry and apprehensive at the idea that he would have to bear sole responsibility (and blame) for the high-risk, high-fee investments he had expanded PIMCO into” and thus resigned.

Shortly after El-Erian’s resignation, the Financial Times published a piece based on leaked information offering El-Erian’s side of the story. Gross alleges that while he sought to punish the source of the information, others in management sought to cover up the incident. The complaint asserts that “money-driven” executives then used El-Erian’s departure as “cover” to oust Gross. Gross claims that he clashed with other executives at least in part because he was “philosophically opposed” to a “high-risk, high-fee investment model” and criticized the executive in charge of PIMCO’s mutual fund complex who was “proud of his efforts to raise the annual fees on various funds, such as the Total Return Fund, through creatively labeling such fees “‘administrative costs.’”

According to the complaint, Gross reached an agreement to step back from management at PIMCO, turn over management of the flagship Total Return Bond Fund in exchange for managing a portfolio a tenth the size, and not set foot in PIMCO’s offices. Gross alleges that the CEO of Allianz, the parent company of PIMCO, agreed to the arrangement before subsequently yielding to the wishes of the PIMCO executives seeking to oust Gross.

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