A US fund manager known as “the bond king” was handed pay totalling $290m (£185m) last year – even though his Total Return Fund underperformed its rivals.
The payment to Bill Gross, former chief investment officer of California-based Pimco, was among a number of huge rewards handed out by the investment company, according to Bloomberg.
The news agency reported that 59 other Pimco managing directors split a bonus pool of $1.2bn, with Mohammed El-Erian, who shared the title of chief investment officer, receiving $230m. Both El-Erian and Gross – who once referred to himself as “the Justin Bieber of bonds” – have left the firm this year, after reports of repeated clashes.
Gross has joined rival Janus Capital, while El-Erian said he decided to leave after his 10-year-old daughter wrote out a list of 22 events he had missed – from Halloween parties to sports matches – because of his job.
Bloomberg said the scale of the payouts was calculated from “news reports, public records and new data”.
Pimco’s compensation has long been a closely guarded secret and, in a statement, the firm disputed the payout numbers: “While Pimco does not comment on compensation, the figures provided to Bloomberg are not correct,” it said.
The firm, which has nearly $2tn under management, added: “For more than three decades, Pimco’s managing directors have maintained a substantial interest in the firm, currently 30% of profits, and this provides an important means to attract and retain the best investment talent to serve our clients.”
The firm’s UK staff – led by Andrew Balls, brother of shadow chancellor Ed Balls – have previously been at the centre of controversy over pay. Two years ago it was claimed that a tight circle of the six most senior UK executives shared £57m.
Wall Street compensation consultant Alan Johnson, of Johnson Associates, said the last time a corporate money manager earned a salary the reported size of Gross’s pay was in the 1980s when “junk bond king” Michael Milken reigned at Drexel Burnham Lambert.
A star money manager, said Johnson, might expect to earn $25m-$30m, although a hedge fund boss might earn far more. One of the highest-paid hedge fund managers is Steve Cohen, of the former SAC Capital, whose bonus and salary reportedly totalled $2.3bn in 2013.
Gross’s high pay is widely attributed to the fact that he built the business. He was one of the founders of Pimco in 1971 and has told his staff that the firm wouldn’t have accumulated $2tn in assets without his name and reputation. Over the lifetime of his Total Return Fund, he generated about an 8% return for investors each year.
However, Gross has struggled to turn in decent returns to his investors for the past few years, creating a significant rift between his pay and his performance. It is rare for corporate money management firms to pay such high salaries, primarily because many of them have to answer to shareholders. Pimco is owned by giant German insurer Allianz, which has been defending the subsidiary all year.
Gross’s time at Pimco was characterized by frequent conflicts with staff and eccentric behaviour including, allegedly, banning anyone from talking to him in the mornings.
He was known for his confrontational, brash style, once reportedly challenging his co-chief executive by asking: “I have a 41-year track record of investing excellence. What do you have?” and declaring “I’m tired of cleaning up your shit.”
At Allianz’s annual meeting in May CEO Michael Diekmann mounted a spirited defence of Pimco after El-Erian left.
“We have more than earned back all the expenses spent on the purchase of Pimco over the past few years,” Diekmann told shareholders. He said that last year Pimco made a “significant contribution” to Allianz’s earnings.
