Bill Gross majority shareholder in his own fund?

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ERMD
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Bill Gross majority shareholder in his own fund?

Post by ERMD »

saw this today: http://www.marketwatch.com/story/sec-fi ... eid=yhoof2

did a quick search and haven't seen anyone mention it yet. this seems really odd to me. wouldn't this cloud his judgement in certain respects? a third of his net worth is now in the fund he's managing. he did well at PIMCO but sure didn't own >50% of PTTAX.

i guess that's one way to put your money where your mouth is! :greedy
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Day9
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Re: Bill Gross majority shareholder in his own fund?

Post by Day9 »

If the manager doesn't own enough of his fund people will complain he doesn't eat his own cooking. Gross owns a lot of his own fund and you complain that it clouds his judgment. At what point would you be satisfied?

Why do you think owning a large stake in his own fund would cloud his judgment? Isn't this a indicator that there is little-to-no conflict of interest?
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Gropes & Ray
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Re: Bill Gross majority shareholder in his own fund?

Post by Gropes & Ray »

my preference would be for a manager that is significantly invested in the fund. The amount of his investment will likely make him more conservative, so that is something to consider. With a bond fund, conservative is probably your goal.
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Re: Bill Gross majority shareholder in his own fund?

Post by ERMD »

not sure how you read my post as a complaint. it was just an observation of a manager owning a 3/4 billion dollar majority position in his own fund. how many other instances of that can you come up with?

the conflict i can think of, off the top of my head, is that perhaps he'd be more likely to be even more conservative in his management approach than he would otherwise.
between scotch and nothing, i'll take scotch. -- faulkner
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Re: Bill Gross majority shareholder in his own fund?

Post by sores »

Personally, I think it's a bit odd. I mean, there's still a nonzero probability that the fund suffers big losses. In that case Gross will 'lose' both his job and part of his savings. Underdiversification, not really exemplary of good portfolio management.
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Re: Bill Gross majority shareholder in his own fund?

Post by ERMD »

sores wrote:Underdiversification, not really exemplary of good portfolio management.
i thought that at first, although i also have a sizable chunk of my assets in a single total bond fund (along with the majority of this board, probably).
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Re: Bill Gross majority shareholder in his own fund?

Post by abuss368 »

I would expect his investment aligns his interests with that of the shareholders.
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Re: Bill Gross majority shareholder in his own fund?

Post by abuss368 »

Also, the Janus fund is much smaller than the PIMCO fund, which I believe was the largest bond fund (and maybe the largest overall fund at one time), in the world.
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Re: Bill Gross majority shareholder in his own fund?

Post by nisiprius »

abuss368 wrote:Also, the Janus fund is much smaller than the PIMCO fund, which I believe was the largest bond fund (and maybe the largest overall fund at one time), in the world.
And even today we see:

Janus Global Unconstrained Bond, $1.5 billion
PIMCO Total Return, $ 134.6 bil
Although PIMCO Total Return is now smaller than
Vanguard Total Bond Market Index Fund, $141.1 bil

I have no problem at all with it unless the point was to create a deceptive impression of fund inflows, in which case I am glad for mutual fund disclosure regulations.
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Re: Bill Gross majority shareholder in his own fund?

Post by abuss368 »

nisiprius wrote:
abuss368 wrote:Also, the Janus fund is much smaller than the PIMCO fund, which I believe was the largest bond fund (and maybe the largest overall fund at one time), in the world.
And even today we see:

Janus Global Unconstrained Bond, $1.5 billion
PIMCO Total Return, $ 134.6 bil
Although PIMCO Total Return is now smaller than
Vanguard Total Bond Market Index Fund, $141.1 bil

I have no problem at all with it unless the point was to create a deceptive impression of fund inflows, in which case I am glad for mutual fund disclosure regulations.
Investors bailed from PIMCO after Bill Gross left!
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Re: Bill Gross majority shareholder in his own fund?

Post by greg24 »

sores wrote:Personally, I think it's a bit odd. I mean, there's still a nonzero probability that the fund suffers big losses. In that case Gross will 'lose' both his job and part of his savings. Underdiversification, not really exemplary of good portfolio management.
He is 71, with a net worth of $2.3B. I don't think he needs to worry too much about losing his job or some investment losses.
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Re: Bill Gross majority shareholder in his own fund?

Post by ERMD »

greg24 wrote:
sores wrote:Personally, I think it's a bit odd. I mean, there's still a nonzero probability that the fund suffers big losses. In that case Gross will 'lose' both his job and part of his savings. Underdiversification, not really exemplary of good portfolio management.
He is 71, with a net worth of $2.3B. I don't think he needs to worry too much about losing his job or some investment losses.
you also wouldn't expect a total bond fund to have catastrophic losses in any one year, which is kind of the point.
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Re: Bill Gross majority shareholder in his own fund?

Post by MossySF »

$1B is a threshold requirement for many institutional plans. Hence Bill Gross dumped his own money into the fund in order to attract more money.
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Re: Bill Gross majority shareholder in his own fund?

Post by AndrewHMeador »

sores wrote:
Personally, I think it's a bit odd. I mean, there's still a nonzero probability that the fund suffers big losses. In that case Gross will 'lose' both his job and part of his savings. Underdiversification, not really exemplary of good portfolio management.


He is 71, with a net worth of $2.3B. I don't think he needs to worry too much about losing his job or some investment losses.
If I lost $700 million right now I would be... distressed.
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Re: Bill Gross majority shareholder in his own fund?

Post by dnaumov »

For a money manager, not "eating your own dog food" is seen as a huge red flag by investors. If the money manager himself doesn't believe in his process enough to put a significat part of person networth into the fund, why would potential investors?
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Re: Bill Gross majority shareholder in his own fund?

Post by Tanelorn »

AndrewHMeador wrote:If I lost $700 million right now I would be... distressed.
I think if most of us lost that much, it would a problem for our creditors and not so much for us.
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Re: Bill Gross majority shareholder in his own fund?

Post by dnaumov »

Tanelorn wrote:
AndrewHMeador wrote:If I lost $700 million right now I would be... distressed.
I think if most of us lost that much, it would a problem for our creditors and not so much for us.
As they say, if you owe a bank $1 million, you are in trouble - if you owe a bank $1 billion, the bank is in trouble :)
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Re: Bill Gross majority shareholder in his own fund?

Post by ofcmetz »

I'm proud of him for putting a bunch of his own money into his fund. I think fund mangers should have the majority of their own money in the funds they manage
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Re: Bill Gross majority shareholder in his own fund?

Post by bberris »

You guys are missing something. He pays the fund management fee to himself. Every other shareholder foots the bill. There is a huge conflict of interest here.
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Re: Bill Gross majority shareholder in his own fund?

Post by Tanelorn »

bberris wrote:You guys are missing something. He pays the fund management fee to himself. Every other shareholder foots the bill. There is a huge conflict of interest here.
I don't know his arrangement with Janus, but the ER goes to the fund company first and then they pay Gross per his employment agreement out of that. There's no reason to believe, unless you've got evidence to the contrary, that his shares are somehow being subsidized by the other shareholders. If anything, to the extent Gross's shares pay anything more than zero (supposing he negotiated a reduced fee arrangement or to be paid some of the ER on his investment), that helps subsidize the overhead and other fixed costs of running the fund which should be better for everyone else.
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Re: Bill Gross majority shareholder in his own fund?

Post by Dandy »

Normally, I would think that a portfolio manager that owned a majority of his fund would be an issue is because he may make decisions that favor his financial needs vs the funds shareholders. e.g. being more conservative than normal because he will retire soon, or avoiding some issues that pay higher dividends because of his high tax bracket etc.

I gather Bill Gross is quite rich even without his investment in his Janus fund. His reputation/ego is more focused on regaining his genius moniker and attracting more assets. I guess that might force him to take more risks in hopes of hitting a home run. Another reason to focus on broad based index/passive funds and leave the active management to other investors.
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