Bill Gross has not enjoyed the kind of career twilight for which a celebrated billionaire might hope. In fact, it has been downright miserable.
As the founder of Pimco — the biggest and most influential fixed-income powerhouse in the world — Gross was a finance industry rock star. At one point the “bond king” managed hundreds of billions of dollars, and his bets could make or break the fate of countries. His anecdote-laden, often outrageous investment letters made him a colourful splash in a monochrome industry.
But after four decades at the helm, Gross was unceremoniously ousted from Pimco in 2014. His magic touch then turned to dust at Janus Henderson, a smaller money manager where he sought refuge before finally retiring last Friday. Adding to the misery, a messy divorce simultaneously made him tabloid fodder.
It is a modest fall from grace compared with some infamous Wall Street flame-outs. The 74-year-old is still vastly wealthy (Forbes puts his fortune at $1.5bn), in good health, and now in a happy relationship with Amy Schwartz (49), a former professional tennis player. But for someone who once boasted that “my desire is to win, and win forever”, the tribulations have left deep marks. Gross seems consumed by doubt — as he readily confesses over an intense three-hour lunch at the Big Canyon Country Club in Newport Beach.
“I wanted to be famous because I wanted to be loved ... pursued that obsessively,” he reflects at one point. “Shit, that’s why I’m talking to you today.”
I arrive early at the club, of which Gross has been a member for three decades. The Big Canyon is grand in a blandly luxurious way, and most famous for once giving an honorary membership to a young up-and-coming amateur golfer called Tiger Woods. Gross turns up in familiar attire to anyone who has caught his countless TV appearances, wearing a pink Hermès tie tied so loosely around his neck that a school headmaster would instantly give detention. He quickly changes into a white-and-blue striped polo shirt — he is playing golf with Amy after lunch — and we settle into a spacious wood-paneled booth to order food.
Except Gross, so softly spoken that my voice recorder sometimes struggles to capture him, quickly launches into a golf story that evolves into a long discussion of the physical impact of ageing, the nature of intelligence, “common sense quotients” and child-raising. The menus remain unread as we segue into his time in the Navy, where he served on a ship transporting SEALs up the Mekong Delta. It was a formative experience, because “I sort of failed at it. I was only 21 and leading people was beyond me.”
Gross is in full flow but, having skipped breakfast, I suggest we order something. Luckily, all the golf courses except the driving range are closed, so the place is sparsely attended and service is wonderfully prompt.
Gross absent-mindedly asks for his usual, a tuna melt, and no fries. When the waiter suggests a side of fruit, Gross says: “I don’t like fruit either.” I order a gazpacho to start, and cod tacos as my main. We both get Diet Cokes after my suggestion of something more indulgent fails. “It’s kinda baloney to be so structured, but I have one beer a day, that’s it,” he says. “And I can get relatively loopy on one beer.”
It was hard work. I never went to the movies, I never had a friend, I didn’t have a car and there were no hookers or any of that shit. It was just 16 hours a day of blackjackBill Gross
After Vietnam, Gross went back to university, to study for an MBA at UCLA — a pivotal decision that was inspired by an earlier formative experience. Gross had suffered a horrific car accident as a psychology student at Duke University. While recuperating at hospital he devoured Beat the Dealer, a seminal book on blackjack by the gambler-turned-investor Edward Thorp, and played, by his estimation, thousands of games.
On graduating, Gross hopped on a train to Las Vegas and turned $200 into a tidy $10,000 in five months. But he later calculated that it only worked out to be $5 an hour. “It was hard work. I never went to the movies, I never had a friend, I didn’t have a car and there were no hookers or any of that shit. It was just 16 hours a day of blackjack.”
ERA OF EXCESS
That grueling lifestyle was not something he wanted to return to after the Navy, but Gross thought his skills might translate into trading. After all, it required “mathematical skill, an obsessive quality, and a belief you can beat the system”. His interest was reinforced by Thorp’s second book, Beat the Market. Gross eventually wrote his MBA thesis on it, which secured him his first job in finance at Pacific Mutual Life — from which he would launch Pimco in 1971.
The business came of age in an era of excess, but where the culture of Wall Street was reputedly fueled by drink and drugs, Gross insists he never saw anything troubling at Pimco. Their main high, he says, was sugar — especially M&M’s. “It gave us all the false courage in the world to take on dealers and tell them to go f*** themselves,” Gross recalls wistfully, as he tucks into what looks like an unremarkable tuna melt.
Active, aggressive bond investing was Gross’s big innovation. Historically, insurers and pension funds were the big buyers of bonds. They rarely traded — in fact, bonds were typically kept in a vault, and selling meant physically mailing them to the buyer — and enjoyed cordial, clubby relationships with Wall Street. Pimco, on the other hand, actively traded in and out of positions, expanded assertively into hot new areas such as junk bonds and emerging markets, and used its increasing clout to cudgel banks into giving them better bids.
“Back then [we were] known as bad asses. Between banks and insurers there was a friendly atmosphere, but we were definitely not friendly. We were looking for every penny we could get,” Gross says. The result was an investing empire that peaked at $2-trillion of assets under management in the wake of the financial crisis, which Pimco navigated with aplomb.
Gross’s results started to splutter in 2011, leading some critics to argue that he had simply coasted on a tremendous three-decade bond bull market, and wiped out once the wave crested. Even Gross himself speculated in 2013 that perhaps “it was the epoch that made the man as opposed to the man that made the epoch”.
Slowly eating his sandwich, and occasionally stabbing the air with his paddle pick for emphasis, Gross admits that he would probably not be where he is today if he had been born a decade earlier or later. “I think we did it better, but I also think it was a huge wave to surf if we could ride it.”
That is true, but undersells what Gross built in Newport Beach. Even his critics concede that Gross was a brilliant trader and pretty much invented the bond fund in its modern incarnation.
Gross attributes his drive to a deep-seated need for recognition. At Pimco he would ask potential hires what they would choose if they could only have one thing: money, power or fame. “I knew for me it was to be famous. And I think that people that want to be famous, I think they’re really looking for love.”
Nervous about prying, but intrigued by the admission, I ask about his parents. Gross says they “didn’t believe in hugging or kissing”. While he stresses that blaming your parents for anything at the ripe old age of 74 is “f***ed up”, he still sounds resentful that they never came to any of his basketball games, or visited him at Duke — even when he was hospitalised. By this point he has finished half of his sandwich, and is stabbing the leftovers with his pick.
Gross has lately come to understand another aspect of his personality more clearly. When reading The Big Short, Michael Lewis’s 2010 book on the iconoclastic outsiders who saw the financial crisis coming, he was struck by the story of Michael Burry, a hedge fund manager who belatedly realised that he had Asperger’s syndrome on reading a list of common symptoms: a reluctance to make eye contact, an obsessive, awkward nature and odd hobbies. “This is me!” Gross (an avid stamp collector) thought to himself. He went to see a psychiatrist and returned with a formal diagnosis.
The combination of a ravenous appetite for fame and the obsessiveness of Asperger’s might have helped propel Gross to the pinnacle of the investment world, but also ultimately conspired to send him tumbling down.
Desperate to prove that his golden touch hadn’t disappeared, Gross admits he ignored the lessons of a lifetime and took excessive risks with his new fund
A waiter comes over to clear our plates, but Gross waves her away as he launches into his account of his dramatic defenestration at Pimco in 2014. The incendiary lawsuit he launched against his former firm — accusing a “cabal” of executives driven by “lust for power, greed, and a desire to improve their own financial position” for ousting him — has been settled, and a ceasefire is in place. Yet it is still a subject that riles him.
He attributes his fall from grace at Pimco partly to his undiagnosed Asperger’s, which made him a “singular, dominating, angry, quiet, introverted person”. As Pimco grew bigger, and the average employee became younger, his “style of speaking my mind in a non-friendly way” started to cause friction. “Millennials like to hear good things, not bad things,” he says.
Things came to the boil in 2014, when Mohamed El-Erian, Pimco’s CEO and a vital Gross shock absorber, abruptly quit. A subsequent rash of stories blamed El-Erian’s exit on the founder’s increasingly difficult behaviour — which sent Gross on a witch hunt for media leaks. Ultimately, faced with a possible exodus of frustrated senior fund managers, Pimco’s executive committee instead decided to oust Gross.
Gross offered to take on a reduced role. “I was begging like a mongrel, sniffing for titbits on the ground ... I just wanted to stay at Pimco, it was my family,” he says, alternating between anger and sadness. “They looked at me, and said no ... So I called up Janus.”
Unfortunately, his time at Janus Henderson provided no salvation. Desperate to prove that his golden touch hadn’t disappeared, Gross admits he ignored the lessons of a lifetime and took excessive risks with his new fund. It started out reasonably well, but suffered a 3.9% loss last year, underperforming his benchmark and most other bond fund managers. “I lost my bearings,” he says. “I wanted to prove that I could still do it, and do it quickly.”
He wonders aloud whether it would have been better for his legacy if he had simply bowed out quietly from Pimco. “Eventually, as the Coldplay song goes, who would ever want to be king?” he says. His brain might tell him his legacy is intact, “but as you’ve observed, the emotional side of me says ‘people don’t love me any more’.”
Getting over it has proven tough. When his retirement was announced, Pimco took out an advertisement congratulating Gross on his “legendary career, and the enduring success of the firm he helped found nearly 50 years ago”. Gross was initially thrilled, but quickly soured on what he saw as primarily a Pimco ad. He recently declined an invitation to an annual reunion. “They still fired me, and I’m never going to get over that,” he says.
Unfortunately, his private life offered little respite from the professional turmoil. In 2017 he split up with his second wife of more than three decades, Sue Gross. The divorce was played out in the tabloids, reaching a tragicomic nadir with allegations that Gross had filled a house that went to his ex-wife with “fart spray”.
Gross admits this is true, but claims he was only responding in kind to what his former wife had allegedly done to another home that he was taking over. “So I went to a drugstore and found smelly shit,” he says. “I don’t know why I did that. It got very ugly. It’s still ugly.” He quietly reveals that things are now so bad that he wasn’t invited to their son’s wedding in Italy — indeed he only found out about it from his dental hygienist. The downbeat turn in conversation clashes awkwardly with the clinks of wine glasses and chatter from a handful of wealthy Newport Beach “golf widows” lunching nearby.
I decide to steer the conversation on to more familiar terrain: markets. Not that this is any less gloomy. Gross frets that the US economy is just buzzing from the sugar high of last year’s tax cuts, and is concerned that low bond yields are doing severe damage to global pension systems. But his biggest fear is President Donald Trump, and what he might do as the next election draws closer. “I think he’s dangerous. He’s going to drag us into something for his own personal benefit.”
As our lunch winds down, half of his tuna melt still uneaten but my tacos long since devoured, Gross stresses that he’s actually feeling pretty good these days. “I am a happy man. I am a happy man. It’s not like the wounds have healed, but I’m having a good time.”
I have my doubts. The demons that drove the rise and fall of Gross still seem very present. But it is a sunny, crisp February day in Orange County, he is off to work on his drive with his girlfriend, and then heading to Bora Bora for an extended, post-retirement holiday, before returning to a life of casual, personal investing, philanthropy and more golf. If this is what a dismal finale looks like, then I suspect most people would take it.
- Copyright The Financial Times Limited 2019