Bill Gross to revive total-return strategy at Janus

Washington

BILL Gross, faced with slow growth at his Janus mutual fund, is reviving the total-return strategy that made him one of Wall Street's most famous bond managers.

Janus Capital Group Inc is setting up a private total-return bond fund, to be managed by Mr Gross, that will raise money from institutional investors, according to a person with knowledge of the matter. Mr Gross told Pension & Investments in an interview published on Monday that Janus plans to offer the total-return strategy as a mutual fund as well.

Mr Gross spent decades running the Pimco Total Return Fund and built it into the world's largest bond fund, with US$293 billion of assets at its peak in April 2013, only to quit amid internal strife the following year. While investors have since pulled billions from Pimco Total Return, leaving it with just US$84 billion as at Sept 30, very little of the money has flowed into the unconstrained bond strategy that Mr Gross now runs at Janus.

"The Pimco Total Return bond fund has bled a lot of assets," Greggory Warren, an analyst at Chicago-based Morningstar Inc, said. "That money has gotten spread around," he said, adding that the new Janus total-return fund "might be an opportunity to capture some of that".

Mr Gross, 72, didn't immediately respond to requests for comment.

Institutions that are willing to invest at least US$100 million can get the Janus total-return strategy as a separate account, said the person, requesting anonymity because the fund is not being marketed to the public. The other terms of the private fund and the separate accounts weren't available.

Mr Gross began running the Janus Global Unconstrained Bond Fund within days of his September 2014 departure from Pacific Investment Management Co, the Newport Beach, California-based company that he co-founded in 1971. By the end of 2014, the Janus unconstrained fund had net assets of roughly US$1.4 billion, about half of which was Mr Gross's own money. The fund has since grown to about US$1.59 billion as at Sept 30.

Richard Weil, Janus's chief executive officer, said on a conference call last week that the unconstrained category is small compared with other fixed-income strategies. Mr Weil added that he sees "significant opportunities" for Mr Gross on the institutional side of the business, where clients such as endowments and public pension plans will often invest tens of millions of dollars in return for lower fees.

US investors had about US$105 billion in nontraditional bond funds such as Janus Global Unconstrained as at the end of September, compared with US$820 billion in actively managed intermediate-term bond funds such as Pimco Total Return, according to Morningstar. They pulled more than US$28 billion from nontraditional bond funds in the trailing 12 months while adding a net US$50.5 billion to the intermediate-term category.

While at Pimco, Mr Gross employed his total-return strategy to manage institutional separate accounts as well as the better-known mutual fund. Private funds open only to institutions typically would be able to charge performance fees, and could also force investors to wait months or more before withdrawing their money, thereby avoiding securities rules that require registered mutual funds to provide daily redemptions.

"It gives the fund more flexibility to maybe buy fixed-income instruments that don't trade regularly but could be great investments," said Brent Gillett, a partner at Investment Law Group, an Atlanta-based firm that focuses on fund formation, compliance and regulatory matters. Mr Gillett said mutual funds also face more rules than private funds on the amount of liquidity they must maintain and the leverage they can use.

Mr Gross is already sub-advising a total-return bond fund on behalf of Old Mutual Global Investors Series Plc. The Old Mutual total-return fund has about US$314 million in assets and was up 6.3 per cent this year as at Oct 28, compared with a 4.5 per cent return for the Pimco Total Return Fund.

Janus began laying the groundwork for a total-return strategy earlier this year. In a June filing to sell shares of exchange-traded funds, Janus listed a total-return fund as one of 10 different ETFs it might offer in the future. On Sept 30, the company incorporated the Janus Total Return Fund LLC, according to the website for the Delaware Division of Corporations.

"Bill is not looking to recreate Pimco in his current seat," Mr Weil said during the Oct 25 earnings call. "I don't think he is personally motivated to go trek around the world and gather lots of assets." BLOOMBERG