Mary Childs, the co-host of NPR’s Planet Money podcast, says her new book, “The Bond King: How One Man Made a Market, Built an Empire, and Lost It All,” about PIMCO founder Bill Gross, is her bid to spread knowledge about the man who created the bond market as we know it today.
Gross got his royal nickname from an article in Fortune magazine 20 years ago. He founded PIMCO in 1971, with the idea that bonds could be traded to make money, instead of just being used to receive interest payments. The result was a revolution in how corporations raise money and how investors make money.
At PIMCO, Gross ran what was at the time the world’s largest mutual fund, the Total Return bond fund, which at its height had almost $300 billion in assets. Its assets grew after the financial crisis in 2008, when money poured into it as stocks tumbled. He left PIMCO in 2014 amid internal turmoil involving his co-CEO, Mohamed El-Erian.
Childs wrote that during the financial crisis, PIMCO and Gross steered the government toward policies that might also benefit the firm’s bottom line.
She said Gross’ creation of the modern-day bond market and PIMCO’s influence on government decisions were two of the many reasons why she decided to write the book, working on it since getting a publisher in January 2016.
“I wrote the book because a lot of deities that are so important in the financial system are not known outside that world,” said Childs. “There’s a canyon to cross. It’s important for people to understand the role they have in society.”
It is also important, she said, for people to understand the relationship between major investment firms and society’s infrastructure.
“In the financial crisis, it became clear that a lot of major investment firms had a lot of say and sway. Is this how we want our society to run?” she asked. “Is this a structure that we meant to build?”
Childs said that during the financial crisis, Gross and PIMCO had “indisputably enormous influence” on the market that was at the epicenter of the crisis, the bond market. The financial crisis was a liquidity crisis, and PIMCO often came to the government’s rescue.
“Gross and PIMCO were enormous buyers in the market where the U.S. government needed buyers,” she said. “Whenever there was a standoff — and there were a few — the U.S. government usually ended up doing what Gross and PIMCO wanted it to do.”
One of those standoffs occurred when Gross said at one point during the crisis that firms, including his, would not step up to buy the debt of Fannie Mae and Freddie Mac unless the government bought it first. His ultimatum worked. Soon after, the Treasury came up with a plan to bail out Fannie and Freddie, which finance home mortgages by issuing bonds. But the market for those bonds had collapsed during the financial crisis.
Childs said it’s hard to say how much of Gross’ strategy was guided by policy considerations and how much by considerations for PIMCO’s bottom line.
“It might be impossible to distinguish where ‘best policy’ stops and ‘what’s best for the bottom line’ starts,” she said, “in part because you invest in what you think is best — or at least most likely — but also money has a way of being entirely convincing. If your money is invested betting on one outcome, it’s incredibly difficult to see how any other outcome makes sense … this was incredibly profitable for PIMCO.”
PIMCO’s bottom line thrived either because of or despite what could clearly be called a toxic office culture. Childs gave an example in the book.
“One trader came up with a routine, arranged with a couple of trusted counterparties: as needed, he would message one of them “It’s on,” and the counterparty would reply “k,” and then the PIMCO trader would pick up the phone on his desk, in the middle of the trade floor, and call the counterparty, on a line accessible to anyone within PIMCO, and he’d threaten and yell and scream at the top of his lungs, and all the counterparty would say was “I’m sorry, I’ll do better, I’m sorry, I’ll do better.” This established the trader within PIMCO as a hard-ass, with no cost to his actual relationships with counterparties,” she wrote.
Childs said it seems that the culture was certainly not a hindrance to profitability, and “as awful as it sounds, maybe it even helps? The culture at PIMCO pressed on all weaknesses — in the market and in trading, but also in its employees. No dollar left unsqueezed, no minute wasted.” She acknowledged, though, that while this intensity can be great for clients, eventually the marginal benefit of it becomes negative.
For many of the people there, Childs said, PIMCO was a miserable place, but they endured it in order to be, as she put it, multi-millionaires with limited social lives in the cultural desert of Orange County, California.
“I have the words of one former executive echoing in my ears: oh, was he not nice to you? You can't take the wire brushing? Go to Sesame Street. Everyone knew what the deal was,” she said.
John Brynjolfsson was at PIMCO for almost 20 years, from 1989 to 2008. He was hired out of a graduate program at the Massachusetts Institute of Technology as a portfolio manager at a salary of $52,000 a year at a time when there were only five or six people at PIMCO. He eventually became a managing director.
“Everybody who worked there was a little intimidated by him,” said Brynjolfsson, “but he used that in an effective way to get 100% of the people there to work at 100% capacity. Everybody put 100% of what they were capable of into their job.”
He called Gross “an absolutely fantastic manager, not in the sense of a traditional check-the-box business school organizational expert, but more personally and results-wise.”
Brynjolfsson said there was never any ambiguity about what he was supposed to be doing. “If your track coach tells you to train all week for a race on Saturday, your goal is to win the race, and you don’t need a lot of hand-holding to do that,” he said.
Gross let his staff know when he was happy and when he wasn’t, Brynjolfsson said, and on rare occasions might provide some guidance, but “if he spent five minutes a week talking to you about what you were doing, that was a lot.”
He said if Gross wasn’t happy with someone, it just meant they “migrated further out in his solar system. He doesn’t suffer fools gladly, but that doesn’t mean he yells out, ‘You’re an idiot.’ It means he’s going to put your recommendations at the bottom of his pile and not get to them.”
Personally, Gross was known as an introvert who avoided eye contact, said Childs, putting it simply.
Brynjolfsson agreed. “He’s not the life of the party in terms of socializing, but you don’t crystallize a firm of 1,000 to 2,000 people as their leader and manage 500 line items of bond portfolios and 15 committees if you don’t have some ability to understand people,” he said.
It was the fracturing of a relationship, though, that led to Gross’ exit from PIMCO, his relationship with his co-CEO, El-Erian.
“For El-Erian, there was the grind of constant messages and unreasonable demands. The ridiculous, unnecessary messes Gross created, constantly: saying things off-message on TV, torching employees for minor infractions,” Childs wrote.
Gross, meanwhile, “saw only El-Erian’s hollow insistence on face time in the office; his breezy economic doublespeak, words that slipped through your hands like rushing water; his push for 'diversity,' which Gross found vaguely offensive — Gross had prided himself on being equal-opportunity difficult, and he’d always felt he tried to seek out and promote women, as clients were always asking why there weren’t more at PIMCO. There just weren’t as many women around to promote,” wrote Childs.
She said it began to feel like the two no longer saw eye to eye on the firm’s direction, trades and strategy, hiring or products. Finally, El-Erian left in 2014.
“Gross was left reeling,” Childs said. “He took the departure personally. It was very upsetting. He felt betrayed.”
And by 2014, Gross had made some public missteps in trading and was becoming increasingly difficult to work with. He was forced out of PIMCO that year. He went to Janus Henderson to run a similar fund, but his performance was disappointing. He retired in 2019.
“The second he stopped delivering (at PIMCO), suddenly he was ‘erratic,’” Childs said. “Gross told me that, in the end, the people at PIMCO who ‘overthrew’ him were motivated by power and money.”
She said that toward the end of his career at PIMCO, Gross was “put on the outside” for fighting for lower fees for small investors. “He’s been talking about fees being too high since the ’90s. But others in the firm wanted his money. If he was ousted, they could get his share of the profits,” said Childs.
Brynjolfsson called it “easy armchair quarterbacking” to say that Gross could have exited a few years earlier and avoided the ugliness of the final few years of his career.
“It would be nice to delete the last five years of his career,” said the man known as Brynjo, who in retirement races sailboats out of San Diego.
Gross, who is 78 and has a net worth estimated at $2.6 billion, now focuses on philanthropic efforts.
“He is very reflective,” said Childs. “He thinks about himself and his place in the world. He’s kind of this vehicle for understanding the American success story, but he says he sides with the plight of labor now. He struggles with being so rich.”
