El-Erian Says Pimco’s Gross Is One of World’s Best Investors

Apr 23, 2014 4:15 pm ET

(Updates with El-Erian declining to comment on Gross relationship in third paragraph.)

April 23 (Bloomberg) -- Mohamed El-Erian, who quit Pacific Investment Management Co. in January amid reports of clashes with Bill Gross, said the legendary bond manager is still one of the world’s great investors.

“I have had the privilege of watching him in action and he is just a great investor,” El-Erian said today in an interview with Betty Liu on Bloomberg Television.

El-Erian, 55, speaking in his first television interview after leaving, declined to comment on his private relationship with Gross, which media reports painted as becoming increasingly strained as Gross struggled to navigate rising interest rates and client withdrawals in the past year. Since El-Erian announced his resignation, triggering a management reorganization, Gross has said his firm is now in better shape than before and he may have been premature in anointing him as his heir apparent.

Gross has stumbled in the past year after building one of the best long-term track records in the industry during a bond bull market. Since the 70-year-old examined his legacy in an investment outlook a year ago entitled “Man in the Mirror,” his $232 billion Total Return Fund has trailed 89 percent of similar funds. Over the past five years, the fund is beating 58 percent of peers.

Talent Pool

As Gross and the firm’s main fund have struggled, other managers at the firm have risen to prominence. The $33 billion Pimco Income Fund, run by Daniel Ivascyn, has beaten 99 percent of peers in the past five years. Ivascyn is one of six deputy chief investment officers that Gross appointed after El-Erian announced his departure.

There’s a deep talent pool and an “enormous bench at Pimco and that is key for the firm,” said El-Erian, who is now chief economic adviser to Allianz SE, Pimco’s parent company.

The departure of El-Erian, who previously shared the role chief investment officer with Gross, was followed by reports of clashes between the two men. Gross lashed out at El-Erian in a June meeting as performance at his biggest fund stumbled and investors continued to pull money from it, two people familiar with the matter said this year.

El-Erian said long hours, a grueling schedule and a desire to spend more time with his family contributed to his decision to resign. He said he now spends up to 50 percent of his time advising Allianz and is occupied with what he called a “portfolio” of part-time activities. This includes writing a column for Bloomberg View, the opinion section of Bloomberg News, working on a book about central banks and doing a periodic column for the Financial Times. He’s also discovered the “incredible ecosystem of Twitter,” he said. He said he spends more time with his daughter, making breakfast and driving her to school.

Special Moments

“You realize there are special moments in your children’s life,” El-Erian said. “I was missing too many of these special moments. It is that simple.”

The son of an Egyptian diplomat who’s fluent in English, French and Arabic, El-Erian received a bachelor’s and master’s degree in economics from Cambridge University as well as a Ph.D. from Oxford University. He joined Pimco in 1999 as a senior member of the portfolio management and investment strategy group after working for the International Monetary Fund for 15 years.

He left in 2006 to serve as CEO of Harvard Management Co. and revamp the university’s endowment before rejoining Pimco about two years later. El-Erian, who made a name for himself investing in emerging-market debt early on in his career at Pimco, was part of the firm’s investment committee that sets strategy guidelines.

‘Secular Stagnation’

El-Erian and Gross in 2009 popularized the term “new normal,” to describe an era of lower returns, heightened government regulation, diminishing U.S. clout in the world economy and a bigger role for developing nations. El-Erian today reaffirmed that idea, saying that the markets are in “secular stagnation.”

While the U.S. economy is healing, Federal Reserve Chair Janet Yellen recognizes the consequences of monetary policy and won’t raise interest rates for a while, he said.

El-Erian, discussing his potential career plans, said he will stay “miles away from politics,” because “because I don’t think it speaks to my passion, nor does it speak to my comparative advantage.”

New World

Though he closely follows his former colleague Neel Kashkari, who was head of global equities at Pimco until he left in January 2013 to pursue a career in politics, El-Erian said he’d rather “observe people like Neel than try to emulate people like Neel.”

The 40-year-old Kashkari, who managed the $700 billion rescue of the U.S. banking system in 2008, in January announced his bid to run for California Governor.

El-Erian said he’s also learning about technological innovation in the financial industry, and met Scott Saunders, the founder and chief executive officer of Payoff.com Inc., when their daughters were in a same theater group together. El-Erian visited Payoff’s offices and “may well” invest in the firm, he said.

“I’m really excited about what they’re doing, and I’m excited about just learning more about that world,” he said, citing conversations with Eric Schmidt, the chairman of Google Inc., and Jared Cohen, founder and director of Google Ideas. “They’re just opening up my eyes to a world that I should have known more about and I didn’t.”