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Guess how much money Bill Gross made last year?
HOW much compensation the folks at Pacific Investment Management Co, better known as Pimco, haul in each year has always been a topic of fascination on Wall Street.
In 2012, news reports suggested that the firm's top 30 partners "pulled down an average US$33 million a year in compensation in recent years". A subsequent column by Felix Salmon guessed that the average investment professional at Pimco was making "roughly US$7 million each" annually.
A Pimco spokesman denied Mr Salmon's claim, saying: "The numbers cited in your blog post are wildly inaccurate." The speculation was, indeed, wildly inaccurate - to the downside. Actual bonuses at Pimco are higher, much higher, than probably any outsiders previously believed. Based on news reports, public records and new data obtained by Bloomberg View, it appears that Pimco had a 2013 bonus pool for its 60 managing directors of almost US$1.5 billion.
So how much have Pimco's top executives earned? According to documents provided to Bloomberg View by someone with knowledge of Pimco's bonus policies, the numbers break down like this: Mr Gross earned US$290 million as his year-end bonus for 2013. Mohamed El-Erian (a fellow Bloomberg View contributor), Pimco's former chief executive officer and one-time heir apparent to Mr Gross, received US$230 million.
And the story doesn't end with Pimco's two most visible (former) employees. Former deputy chief investment officer Daniel Ivascyn - now serving as Mr Gross's replacement as Pimco's chief investment officer - took home a US$70 million bonus. Wendy W Cupps, the global head of product management, garnered US$50 million, making her one of the highest-paid woman in finance. Douglas Hodge, now the CEO, took home US$45 million of holiday cheer. These giant bonuses almost make the US$22 million awarded to Pimco's president, Jay Jacobs, seem puny.
The top three managers after Mr Gross and Mr El-Erian - Mr Ivascyn, Ms Cupps and Mr Jacobs - were rumoured to have been behind the coup that sent Mr Gross packing to Janus Capital in September. Next month, free of Mr Gross and Mr El-Erian, these three will have an extra half a billion or so to keep to themselves or distribute to the other managing directors.
Mr Gross's bonus - 20 per cent of the total bonus pool for 2013 - places him in a compensation class of his very own. To put that figure into context, in 2013 Mr Gross made just shy of what the next 20 publicly held finance company CEOs made combined. In the world of sports, you would have to take the total salaries, winnings and endorsement deals of LeBron James, Lionel Messi, Kobe Bryant, Tiger Woods and Roger Federer - together - to be on par with Mr Gross.
How Pimco became such an earnings machine is a quirk.
It has been four decades since it was spun out of Pacific Life Insurance, a move that was made in part to allow Mr Gross a freer hand to manage the insurer's fixed-income portfolio. Since then, Pimco has grown into a behemoth, in terms of the bottom line and as a force in the bond market.
Much of what we know about Pimco stems from Allianz SE's US$3.3 billion purchase of 70 per cent of the firm in 2000. A publicly traded German insurer, Allianz has released some details about Pimco's operations in its quarterly earnings reports. That data, along with mutual fund disclosures and filings, provide hints about the firm's revenue.
We can estimate earnings by looking at the largest Pimco funds. The 20 biggest have an average fee of about 61 basis points. Let's lower that to account for discounts given to large institutional clients, and we get a rough estimate of about 50 basis points. On US$1.82 trillion dollars, that yields US$9.1 billion in revenue a year.
Pimco is, by any measure, a fabulously wealthy company. Using my back-of-the-envelope revenue estimate, it generates far more revenue per employee than any bank or asset manager - almost four times as much as Goldman Sachs.
When Allianz bought into Pimco, it picked up about US$250 billion in assets under management. Pimco currently manages about US$2 trillion.
The bonus structure is a quirk of that original deal: Allianz's partial purchase left Pacific Life owning 30 per cent of Pimco. But Pacific Life wasn't interested in running the asset-management business and even after the Allianz deal, everyone involved continued to defer to Mr Gross's financial and managerial judgment.
Thus Pimco - based in Newport beach, California, and 10,000 km away from its majority owners - remained fully autonomous. Bloomberg View's fee analysis suggests Allianz takes about 70 per cent of the total revenue Pimco generates annually (plus or minus a few percentage points). Pimco keeps the rest.
This same-deal structure continued even after Allianz purchased the 30 per cent of Pimco that it didn't already own from Pacific Life in the mid-2000s. A subsequent restructuring in 2011 saw Gross and his team gain even greater control over the firm. That gave Pimco so much freedom in relation to its corporate parent that, as one analyst described it to Bloomberg News, it appeared as if it was "the tail wagging the dog".
Part of the reason for Mr Gross's longevity after the Allianz takeover - and another element of the firm's enormous wealth - is what we might call the "Pimco Premium". Despite being in a competitive field including giant companies such as Vanguard and Blackrock, Pimco manages to charge more than the industry standard for access to its funds and its separately managed accounts.
Pimco also became the go-to company for the Federal Reserve and US Treasury in many of the credit facilities used to combat the continuing economic fallout from the financial crisis.
Beyond the sheer size of Pimco's bonuses, there are other aspects of its compensation practices that should give pause to everyone involved in institutional asset management.
For one, Pimco has been part of a publicly traded company - Allianz - for the past 15 years. Unbeknownst to Allianz's shareholders, employees of one of its business units have been paying themselves these extraordinarily large sums of money.
In the US, it is hard to imagine US$1.5 billion in spending on anything not being disclosed. Almost 16 per cent of Pimco's revenue is a "material" amount of money that would normally require disclosure in the US. But Allianz is a German company, subject to different regulations.
While Mr Gross may be gone, the high fees and compensation structure at Pimco appear to remain firmly in place. Allianz doesn't seem inclined to change things - it started a US$279 million award programme this autumn to keep people from following Mr Gross out the door.
If there is going to be change, it can only come from Pimco's big institutional customers.
Perhaps it might also be a good time for Pimco itself to consider slicing its fees. BLOOMBERG