PIMCO founder Bill Gross is defending his management style, after a piece in Tuesday’s Wall Street Journal largely pointed to it as the reason for Mohamed El-Erian’s unexpected resignation as CEO.
"It's like dealing with family — you don't always produce a productive family by sweet talking and always being inclusive," Gross said in an interview published in Friday’s WSJ. "There's a time for soft love and time for hard love … I can admit to both."
El-Erian, 55, reportedly clashed with Gross, 69, on a number of key issues, including how Gross interacted with employees. Allianz, PIMCO’s parent firm, named El-Erian as its chief economic adviser on Thursday.
While most traders would agree that investment performance can’t succeed on just "sweet talking," many would say that creating an overly hostile or intimidating environment could be counterproductive to strong results.
PIMCO seems to be admitting as much given the structural overhaul it put in place after El-Erian announced his abrupt exit from the bond shop in January. This new structure includes a new CEO, Doug Hodge, and six deputy chief investment officers.
Allianz CEO Michael Diekmann says the company is "very happy" with PIMCO's new management structure, according to the WSJ, and addresses "the long-term question [of] whether PIMCO is a Bill Gross one-man show or more than that," he said.
Gross says that he occasionally “uses humor to make points on the trading floor and that his jokes may be misinterpreted by some as denigration,” the WSJ reported.
"It's hard to see yourself through other people's eyes," he noted. "I suppose they tend to think the big man at the top is calling the shots, but I don't perceive it that way."
Hodge, a near 25-year veteran of PIMCO, told the Financial Times: “This is a watershed moment in PIMCO’s history and one that requires all my attention.”
His interview appeared on Friday, soon after Allianz said it had lot €35.6 billion of net cash in the fourth quarter.
“Yes, Mohamed’s departure was a surprise,” Hodge said. “But a selection committee formed of senior leaders at the firm, of which Bill was the chair, went through the process of looking at internal candidates and, if it was felt necessary, to look externally as well. I was their choice.”
Asked if it takes six people to fill El-Erian’s shoes — Dan Ivascyn, Andrew Balls, Mark Kiesel, Scott Mather, Mihir Worah and Virginie Maisonneuve, who are all deputy CIOs, Hodge was definitive: “No, we are not filling Mohamed’s shoes; we are doing something different.”
He says that this also paves the way for what is to come when Gross retires and there is no longer an executive like El-Erian waiting in the wings.
“I would contend that, by having more people in this deputy role, it secures our future,” Hodge told the Financial Times. “There was this expectation that Mohamed would be the presumptive successor to Bill, but when you identify that person so far in advance of the actual event, you obviously underwrite some risk.”
With the current mix of six deputy CIOs, “any of whom could potentially move into the role of CIO at some point,” Hodge explained, “we are able to safeguard our business.”
Gross has told CNBC that he has “at least a good five years left” in him.
Hodge also rejects the notion that El-Erian left PIMCO because of an argument.
“No, I would reject that proposition at its very start,” said Hodge. “We operate in a very competitive marketplace. Success and failure is measured in hundredths of percentages, and one of the main reasons why we have been so successful is because we are a very competitive organization. To maintain that competitiveness, however, there has to be a sense of intellectual challenge within the organization.”
Whether or not such a challenge — and its associated tension — will continue at PIMCO without El-Erian remains to be seen.
Hodge, though, says he will stay on regardless. “I am not going anywhere,” he stressed.