(Quartz) - Bond king Bill Gross is reduced to making news for harassing his neighbors with irritating music. But in his pomp, Gross ruled the bond market, moving global prices with his forecasts and the billions of dollars at his disposal.
As a founder of Pacific Insurance Management Company, or Pimco, Gross popularized the then-novel concept of trading bonds in the 1970s. He oversaw the growth of his fund for decades, outperforming his competitors for years at a time, before steering into the teeth of the 2007 mortgage crisis and through the unprecedented government interventions that brought it to an end.
All this and more is chronicled in The Bond King, the new biography by financial journalist Mary Childs. It begins with Gross arriving at a sleepy California insurance company just out of business school, and realizing that there was profit to be made swapping the lower-yield bonds sitting in the vault for loans with more lucrative returns.
At the time, high inflation and rising interest rates made holding bonds a money-losing proposition, creating an incentive for active trading. It makes you wonder what Gross could do in today’s volatile bond market, which is arguable facing its worst year since 1842. But for most of Gross’ career, rates were falling—a bull market for bonds.
His winning strategy started with bold bets on the market, but he found ways to squeeze past the performance of benchmark funds by embracing extra risk, and pushing the limits of government rules about swapping assets internally.
How Bill Gross shook hands with the government
For Childs, the importance of Gross beyond the bond market came with his role in the 2007 financial crisis, which reshaped the relationship between financial markets and governments. Unprecedented efforts to protect the real economy from a crash by bailing out the financial system had the troubling side effect of enriching bankers and investors.
Gross and company saw the mortgage crash coming thanks to their deep knowledge of the market, and even called it too early, to their detriment. But in the midst of the collapse, Pimco became indispensable to the government, just as it had for pension funds and other investors, by helping the Federal Reserve value and purchase private debt. Then, it front-ran the government, snapping up other bonds seen as vital to the economy—issued by banks, homeowners, or automakers—and profiting as federal authorities stepped in to guarantee or otherwise support that debt.
“Gross and Pimco figured out that the government needs the markets to function, wants the stock market to go up, wants companies not to go bankrupt,” Childs writes. “So, people can battle over basis points in the full security that things will never be allowed to go too far down. And even if they do go down, for a professional money manager, it’s almost never their problem. There are many people to thank for this, but Gross is chief among them.”
An investor overshadowed by his antics
Still, the substance of Gross’ career isn’t what makes it so memorable. Gross was—is?—not to mince words, a legendary asshole. Or at least a good chunk of his coworkers thought so, citing his raging critiques of tiny mistakes, insistence on silence during work hours, a habit of conveniently forgetting his own mistakes, and harsh turns against his former proteges.
Gross’ behavior eventually led to his 2014 ouster from the firm he built. Gross realized late in life (while watching the film The Big Short, apparently) that he had Asperger’s Syndrome. That may explain, if not exactly excuse, some of his behavior.
Gross reminds me of other pioneering tycoons (Steve Jobs, Elon Musk) whose ugly treatment of other people seems somehow essential to their success. Some of his investor letters, which discussed his golf game, compared bad investments to prostitutes, and examined his weight-loss efforts and fears of cameras in automatic flush toilets, remind me of Musk’s tweets.
Do you have to be an eccentric or a jerk to create a new market or build a world-straddling conglomerate? I asked Childs for her take, and she told me that she did see some connection between jerkiness and business success, pointing to “that ability to disregard everyone else’s vision of reality, an ability to override empathy, at least, to make decisions that are bad for the heart but good for business, intense focus that others might find off-putting.”
That may be changing in a time of rising worker power, and growing expectations that executives affect some measure of empathy, or become the subject of a disparaging prestige television series. Or maybe we’re getting the causality reversed: Perhaps the power and money garnered by these men is the problem, with research suggesting it will warp your social intelligence.
“If a jerkiness was a pre-existing condition [of business success], it is almost certainly also a consequence,” Childs suggests.
By Tim Fernholz
Senior reporter
May 7, 2022
