Bill Gross Leaving PIMCO

This is not a trivial bit of industry information. Bill Gross has run not only by far the largest bond fund on the planet, but he is founder and CEO of PIMCO, which he built into a company that is the behemoth of the bond market, the largest and most widely respected company of its kind. When PIMCO buys or sells, their incredible size moves the markets. The flagship fund, PIMCO Total Return is in nearly every 401(k) lineup.

Here’s why this is critically important for 401(k) trustees to monitor.

CNBC is reporting today that Mr. Gross was set to be fired tomorrow for “increasingly erratic behavior.” His fund has struggled some lately afer many years of top-notch returns.

It also turns out that the fund is being investigated by the SEC as to whether it inflated returns by how it valued its assets. Bonds, you may know, can be hard to price, especially thinly traded bonds. PIMCO was also an extremely, and I do mean extremely, heavy user of futures and many exotic instruments in its trading. PIMCO has perhaps the most complex trading systems of any company and given their incredibly high volume, it will be interesting to see if the SEC is able to sift through it all, or enough to make a difference.

If you are a trustee or other investment fiduciary of a retirement plan, this needs to be monitored closely. You need to place this fund under review immediately.

The flow of assets out of PIMCO, which has been underway for a couple years is going to really accelerate. To fund that, there will likely be a lot of selling and that is going to cause unsettledness in the bond markets.

The culture is going to change at PIMCO and there will be a period of transition. Bill Gross was very involved in everything at PIMCO, and is a brilliant, very tough and by some accounts, difficult and micromanaging type of leader. While there is an incredible amount of talent at PIMCO we don’t know how it’s going to turn out or what it will mean for investment results. The managers are gong to be very involved with trying to keep accounts and stem the flow.