Bill Gross, formerly of Pacific Investment Management Company (PIMCO), wears sunglasses as he arrives to speak at the Morningstar Investment Conference in Chicago, Ill., on June 19, 2014.Jim Young/Reuters
Pacific Investment Management Co. paid its former chief investment officer Bill Gross a bonus of about $290-million (U.S.) in 2013, a year in which his Total Return Fund trailed a majority of peers, according to documents provided to Bloomberg View by someone with knowledge of Pimco's bonus policies.
Mohamed El-Erian, 56, the former chief executive officer who previously shared the title of CIO with Gross, received a 2013 bonus of about $230-million, according to figures first reported today by Bloomberg View columnist Barry Ritholtz.
By comparison, Laurence D. Fink, CEO of BlackRock Inc., the world's biggest money manager, received $22.9-million in 2013 compensation, and Michael Diekmann, CEO of Pimco's parent Allianz SE, was paid €7.2-million euros, regulatory filings show.
"While Pimco does not comment on compensation, the figures provided to Bloomberg are not correct," said Dan Tarman, a spokesman for Newport Beach, Calif.-based Pimco, declining to specify the firm's objections. "For more than three decades, Pimco's managing directors have maintained a substantial interest in the firm, currently 30 percent of profits, and this provides an important means to attract and retain the best investment talent to serve our clients."
The figures provide a rare glimpse of how some executives were paid at Pimco, even as performance at the firm's main fund stumbled and clients started to pull out. The bonus for Gross, 70, was rivaled only by a small group of billionaire money managers such as Apollo Global Management LLC's Leon Black and Blackstone Group LP chief Steve Schwarzman.
Ivascyn, Hodge
Compensation for money managers is typically tied to the amounts they oversee and the returns they produce. Gross and El- Erian together were responsible for the firm's almost $2-trillion in assets as co-CIOs in 2013. Gross's main fund, Pimco Total Return, trailed 65 per cent of peers in 2013, after beating 90 per cent of peers in 2012, according to data compiled by Bloomberg.
Gross, who now works for Janus Capital Group Inc., and El-Erian didn't respond to phone calls seeking comment. Steven Shapiro, a spokesman for Denver-based Janus with Communications Strategy Group, declined to comment.
"Allianz is fully aware of the profit sharing plan at Pimco," said Petra Brandes, a spokeswoman for Munich-based Allianz. "This element of partnership has always been in place and has been a basis of success at Pimco. It was an integral part of the acquisition of Pimco by Allianz in 2000 and resulted in a reduction of the purchase price paid. The payments under this partnership structure are not comparable to common forms of variable compensation payments."
Hedge Funds
Daniel Ivascyn, Pimco's new group chief investment officer, appointed after Gross's surprise departure on Sept. 26, made a bonus of about $70-million last year, the documents show. Ivascyn, 45, runs the $39.3-billion Pimco Income Fund, which beat 99 per cent of peers last year, returning 4.8 per cent, according to data compiled by Bloomberg.
Wendy Cupps, the head of product management, received a bonus of about $50-million, the documents show. Douglas Hodge, 57, who was chief operating officer until he took over as CEO in January, received a bonus of about $45-million, and the firm's president Jay Jacobs was given about $22-million.
The bonuses at Pimco rival compensation at top hedge funds and private equity funds, which are typically smaller but charge higher fees. Black, whose Apollo Global Management oversaw $161-billion at the end of last year, got about $369-million in distributions from his stock ownership of the company. Schwarzman, whose Blackstone Group managed $266-billion at the end of last year, received $374.5-million in pay and cash dividends.
Gross, El-Erian
Gross's reward accounted for 20 per cent of the firm's total bonus pool, according to the documents. His Pimco Total Return more than doubled in size from 2008 to its peak of $293-billion in April, 2013, when it was world's biggest mutual fund.
The fund then stumbled when the Federal Reserve hinted it would unwind stimulus measures, sparking investor redemptions. By October, Pimco Total Return had ceded the title of biggest mutual fund to an offering from Vanguard Group Inc. After 18 straight months of client redemptions, it's been reduced to $170.9-billion in assets as of Oct. 31, according to Pimco.
Amid the redemptions, Gross, who co-founded the company in 1971, clashed with management over how to run the firm, leading to the resignation of El-Erian, people familiar with the matter have said.
Client Redemptions
El-Erian is now chief economic adviser at Allianz and a contributor to Bloomberg View.
Gross departed from Pimco after deputies including Ivascyn threatened to quit and management debated his ouster, according to people familiar with the matter. He now runs the $443-million Janus Global Unconstrained Bond Fund.
Investors pulled $51-billion in September and October from the Total Return fund, which is now run by CIOs Mark Kiesel, Scott Mather and Mihir Worah.
Pimco introduced a €225-million award program to retain top talent. The plan applies to ''all employees that are not participating in the Pimco profit pool," including senior portfolio managers below the level of managing director, Allianz chief financial officer Dieter Wemmer said on a conference call Nov. 7.
'Special Performance'
The "Special Performance Award" comes on top of bonus and salary policies already in place, and consists of a cash award to be granted in the fourth quarter and paid over the next 12 to 30 months, Allianz said in its quarterly report. The bonus is expected to cost an average of €33-million before taxes for each of the next five quarters and €10-million each for the remaining six quarters, the Munich-based insurer said.
Since Gross left, Pimco has hired back old members of the investment committee including Marc Seidner, who exited in the wake of El-Erian's departure. Pimco hasn't lost any portfolio managers since Gross, according to Wemmer.
Operating profit at Pimco declined 7.9 per cent to €594-million in the third quarter from a year ago, Allianz said in a presentation of its earnings. It said variable personnel expenses, which are tied to profit, fell 8 per cent. Overall, Pimco reduced expenses by 4 per cent in the three months through September.