September 1, 2011 / 12:38 AM / 7 years ago

Insight: The Bond King, The Pretender, and a job offer

NEW YORK (Reuters) - The rivalry between two of the biggest names in the multi-trillion dollar global bond market, Bill Gross and Jeffrey Gundlach, has gotten more than just personal - after one appears to have claimed he was asked to take the other’s job.

Jeffrey Gundlach co-founder and Chief Executive Officer and Chief Investment Officer of DoubleLine speaks at the 16th annual Sohn Investment Conference in New York May 25, 2011. REUTERS/Jessica Rinaldi

A consultant and an executive assistant told a court this week that in 2009 money manager Gundlach said he had been asked to succeed Gross, who has gained a reputation as “the bond king” as the head of the world’s largest bond fund at Pacific Investment Management Co. (PIMCO).

If true, it would have been a shock in the bond world - in banking the equivalent would be Goldman Sachs Group seeking to replace its CEO Lloyd Blankfein with Morgan Stanley’s CEO James Gorman.

But it is possible the claims, which emerged this week in an acrimonious court battle between Gundlach and his former employer, the Societe Generale-owned Trust Company of the West (SOGN.PA), TCW, were more indicative of misinterpretation or posturing by Gundlach than an actual job offer.

“PIMCO wants me to succeed Gross,” consultant Roger Brossy, in court testimony, recalled Gundlach saying in early 2009.

And in a similar vein, Michael Conn, the executive assistant to TCW CEO Marc Stern, said in August 2009 that Gundlach remarked “that PIMCO would love to have him as a replacement for Bill Gross.”

But if Gundlach had stepped in for Gross, it would have been nonsensical given the decision by former International Monetary Fund official Mohamed El-Erian’s return to PIMCO in 2007 and leave a cushy job as head of Harvard University’s endowment fund, according to sources familiar with the matter.

El-Erian came back to PIMCO, where he worked from 1999-2005, after he was given a job that puts him in a position to eventually take over from Gross, who is 67 years old.

He left PIMCO as senior portfolio manager - where he had been in charge of emerging market bonds - and returned as both co-chief executive officer and co-chief investment officer, and shares the CIO position with Gross. El-Erian took over the full title of CEO after William Thompson retired at the end of 2008.

PIMCO is owned by Germany’s Allianz SE (ALVG.DE), which declined to comment for this story.


TCW on Wednesday rested its case against Gundlach, its former chief investment officer, in the Superior Court of California in Los Angeles. Gundlach’s legal team immediately began calling witnesses in his counter-suit.

TCW fired Gundlach in December 2009 and sued him a month later, accusing him of stealing trade secrets, plotting to form a new company using TCW proprietary information and gutting the firm of its entire mortgage-backed securities team.

Gundlach fired back with a suit, alleging his former employer owed him hundreds of millions of dollars in compensation and had secretly plotted to fire him while he was still CIO.

At the time of his remarks, Brossy was working as a compensation consultant for Western Asset Management Co., which was trying to woo Gundlach from TCW to WAMCO. It was in the course of those ultimately fruitless negotiations that Brossy says Gundlach told him he was also being pursued by PIMCO.

Ultimately, Gundlach went to neither WAMCO or PIMCO and was fired by TCW in December 2009 after TCW stated that Gundlach was about to start a rival firm staffed with his TCW team.

Gundlach has indeed started his own firm Doubleline Capital, which oversees $15 billion. Roughly 45 TCW employees followed Gundlach to DoubleLine.

Gundlach’s talk about being courted by PIMCO may have been part of an attempt to increase his bargaining power with WAMCO and Brossy, according to a source familiar with PIMCO’s operations.

Tony Knight, spokesman for DoubleLine, declined to comment on the testimony about PIMCO’s wish to have Gundlach replacing Gross. Gundlach himself couldn’t be reached for comment.

Dan Tarman and Mark Porterfield, two spokesmen at PIMCO, also had no comment on the matter. Gross declined to comment.

Eric Jacobson, director of fixed-income research at Morningstar who has covered both Gross and Gundlach for more than a decade, said he isn’t convinced Allianz would ever approach Gundlach without conferring with Gross, whose name and strong long-term performance has helped PIMCO amass more than $1.2 trillion in assets.

TCW didn’t think Gundlach was right to lead the entire company “even though he is an excellent and tremendous investor”, said Jacobson. “Gundlach considers himself as good — or better — than the best managers of the world.”

In fact, for the past year and more, Gundlach has outperformed Gross.

Gross and Gundlach have told Reuters that they have never met, which is surprising as Gross works in Newport Beach, California, about an hour south of Los Angeles, where Gundlach works, and given that the world of bond money management stars is a very small one.

A lot has been made about their ‘David versus Goliath’ story over the past decade.

In February this year, Barron’s weekly declared in an article about Gundlach describing his boasts, his ego and his swagger, that he was the new “King of Bonds” - a title once reserved only for Gross.

When asked in March about Gross’ pronouncement that he had dumped all of his U.S. government-related debt, Gundlach told Reuters: “I don’t know anything about (his fund). All I know is what I read in the newspapers.”

Now it is Gross who is reading about Gundlach’s claims to a PIMCO job offer - in the newspapers.

Reporting by Jennifer Ablan; Editing by Martin Howell

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