The Bond King
Bill Gross and PIMCO
Summary
Childs, a financial journalist who covered PIMCO, wrote the story of Bill Gross and the firm he built into the largest bond manager in the world, through his departure in 2014.
The investment material is the interesting part. Gross built PIMCO's record on a set of structural advantages rather than on bond picking: total return management in an era when bond investors bought and held; a macroeconomic framework developed through the firm's secular forums; a willingness to use derivatives, futures and mortgage securities that competitors did not; and, as the firm grew, the ability to move markets and to command information and pricing from dealers that no other buyer could. Childs is specific that scale itself became the edge, and that the returns depended on being the largest buyer in a market where the largest buyer sees everything.
She also covers the years after the crisis, in which the Federal Reserve's asset purchases created positioning opportunities for a manager who understood what the central bank had to buy, and the increasingly difficult internal environment, the arrival and departure of Mohamed El-Erian, and Gross's removal.
Childs interviewed extensively and the reporting is detailed. The book is unflattering to Gross personally and readers should weigh that against his record. It is one of the few good accounts of fixed income management, an area that receives far less coverage than equity investing despite being larger.
Key takeaways 7
- PIMCO's advantage came substantially from scale, since being the largest buyer in a market means seeing flow and pricing that no other participant sees.
- Total return management, meaning trading bonds for capital gains rather than buying and holding for income, was a departure from standard fixed income practice.
- Willingness to use derivatives, futures and mortgage securities gave the firm exposures competitors could not construct.
- A secular macroeconomic framework updated at regular intervals gave the firm a common position that individual managers traded around.
- Federal Reserve asset purchases after the crisis created positioning opportunities for managers who understood what the central bank was required to buy.
- An investment edge derived from size disappears if assets shrink, which makes asset gathering part of the strategy rather than a commercial afterthought.
- Fixed income management receives far less scrutiny than equity investing despite being a larger market.
Who should read it
Investors interested in fixed income management, in scale as a source of edge, and in how a dominant manager's position was built and lost.
Who recommended it 1 · 1 direct
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