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PIMCO’s Gross: El-Erian ‘Trying to Undermine Me’

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PIMCO co-founder and co-CIO Bill Gross accused departing CEO Mohamed El-Erian of trying to “undermine” him by talking to the press about issues between them and told Reuters last week that he had “evidence” El-Erian “wrote” a recent story in The Wall Street Journal about their deteriorating relationship.

“I’m so sick of Mohamed trying to undermine me,” said Gross, 69, according to Reuters, in a story posted late Thursday and updated Friday. The bond guru also indicated that he had been monitoring El-Erian’s phone calls.

When Reuters staff asked to see the evidence implicating El-Erian, Gross allegedly lashed out: “You’re on his side. Great, he’s got you, too, wrapped around his charming right finger,” the news agency reported.

A PIMCO spokesman said in a statement emailed to Reuters on Friday: “Mr. Gross did not make the statements Reuters attributes to him. He categorically denies saying this firm ever listened in on Mr. El-Erian’s phone calls or that Mr. El-Erian ‘wrote’ any previous media article.”

He added: “As a regulated company, PIMCO is required to retain records of its employees’ communications to help ensure compliance with the firm’s policies.”

PIMCO owner Allianz named El-Erian, 55, chief economic advisor last week.

Reuters is standing by its story, and The Wall Street Journal maintains that it did the recent reporting and writing for its PIMCO coverage.

Bad to Worse

PIMCO is in the spotlight after some tough times. Its assets under management fell by some $80 billion in 2013, according to Morningstar.

Plus, the PIMCO Total Return Fund experienced $1.6 billion of net outflows in February, its 10th consecutive month of outflows. In addition, it lagged 71% of its peers with a return of 0.52% last month, the research firm says. (The fund’s 2013 return was close to -2%).

The bond shop announcement El-Erian’s exit on Jan. 21, when it appointmed Doug Hodge as CEO and six deputy chief investment officers.

Still, experts acknowledge that the pressure is clearly taking its toll.

“I’ve never seen Bill and PIMCO scrutinized like this before. This is the most attention I have seen on them,” Eric Jacobson, a Morningstar senior analyst, told Reuters. “A couple of high-profile stumbles and mediocre showings, coupled with some outflows — and with no identified successor for life after Bill — clearly has some investors on edge.”

Jacobson notes that PIMCO’s flagship fund had a 10-year average return of about 6% and a 15-year average track record of nearly 6.7%.

More and More Questions

Lots of investment professionals are following the drama and mulling its implications.

“I guess it is time to revisit PIMCO and Bill Gross and Mohamed El-Erian, since the headlines have started up again,” wrote Tom Bakke, CFA, in a blog posted Friday. “When last we visited the soap opera, I had a simple question: ‘What’s the most important job of a chief investment officer?’ This time, other questions.”

The analyst wonders why, since consultants, institutional investors and investment advisors fill out “thousands” of due diligence questionnaires about PIMCO, how many identified the issues now surfacing in advance?

“Who questioned the firm’s process? Who saw past the fame of the key people and identified the cultural rifts? Truly, I’m interested in knowing, because I don’t think there are many DDQs extant among those thousands that give a hint of what was happening at PIMCO,” Bakke said.

In other words, instead of just scrutinizing Gross and El-Erian, investment professionals might want to focus on their own processes so they can get at the real issues in advance.

“A very tough standard,” Bakke said. “Who met it in this case?”