Bill Gross, Pimco and the cabals in fund management

Thank you Bill Gross, for the insights on the fund management industry that your livid lawsuit against Pimco has provided us, the customers. Now can we all revolt?

Fund management fees have been trending down in recent years, mostly due to competition from passive funds. It is time for a broader fee revolt, and perhaps this lawsuit will help bring it on.


Gross claims that a “cabal” of senior executives at Pimco drove him out of the firm last year, due to jealousy of his guaranteed 20 per cent cut of the bonus pool, which the suit says would have entitled him to US$200 million in 2014.

According to the lawsuit, the cabal was trying to push riskier funds embedded with even higher commissions. They also wanted a performance-based bonus distribution system, rather than giving Gross a fifth of the pool, as per an agreement he made with Allianz when the German financial firm took over Pimco.

Gross defended his guaranteed cut, arguing it was his name and reputation that attracted inflows to Pimco’s funds, thus plumping the fee income. According to the suit: “Mr Gross has developed a towering reputation that has, among other things, led to him being called the ‘bond king’ by the financial media.”

Gross is a product of winner-take-all, superstar economics, where technology and other dynamics enhance the returns of the most talented. This phenomenon is also said to explain the rising premium on CEO pay; the economist Greg Mankiw likes to point out that it makes no sense to decry CEO pay – yet accept that top NBA stars can earn millions.