In 2012, news reports suggested that the firm’s top 30 partners “pulled down an average $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 $7 million each” annually.
A Pimco spokesman denied Salmon’s claim, responding that “The numbers cited in your blog post today are wildly inaccurate.”
Salmon’s 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 $1.5 billion.
What Your Peers Are Reading
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: Gross earned $290 million as his year-end bonus for 2013. Mohamed El-Erian, Pimco’s former chief executive officer and one-time heir apparent to Gross, received $230 million (El-Erian is a fellow Bloomberg View contributor).
And the story doesn’t end with Pimco’s two most visible (former) employees. Former deputy chief investment officer Daniel Ivascyn — now serving as Gross’s replacement as Pimco’s chief investment officer — took home a $70 million bonus. Wendy W. Cupps, the global head of product management, garnered $50 million, making her one of the highest-paid woman in finance. (Her rocky push into equities was the subject of well-publicized haranguing by Gross.) Douglas Hodge, now the CEO, took home $45 million of holiday cheer. These giant bonuses almost make the $22 million awarded to Pimco’s president, Jay Jacobs, seem puny.
The top three managers after Gross and El-Erian — Ivascyn, Cupps and Jacobs — were rumored to have been behind the coup that sent Gross packing to Janus Capital in September. Next month, free of Gross and El-Erian, these three will have an extra half a billion or so to keep to themselves or distribute to the other managing directors.
Gross’s bonus — 20 percent 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 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 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 Co., a move that was made in part to allow 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 $3.3 billion purchase of 70 percent 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 $1.82 trillion dollars, that yields $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 $250 billion in assets under management. Pimco currently manages about $2 trillion.
The bonus structure is a quirk of that original deal: Allianz’ partial purchase left Pacific Life owning 30 percent 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 Gross’s financial and managerial judgment.
Thus Pimco — based in Newport beach, California, and 6,000 miles removed from its majority owners — remained fully autonomous. Bloomberg View’s fee analysis suggests Allianz takes about 70 percent of the total revenue Pimco generates annually (plus or minus a few percentage points). Pimco keeps the rest.