Bill Gross on PIMCO's Secret Sauce

Eric Jacobson: Hi, I'm Eric Jacobson with Morningstar. We're here visiting today with Bill Gross, one of the founders and co-chief investment officer of PIMCO and manager of many funds, but in particular PIMCO Total Return (PTTRX). Bill, thanks so much for joining us today.

Bill Gross: Thank you, Eric. You caught me in my sports coat today.

Eric Jacobson: It's warm out, too. Bill, I wanted to ask you a little bit about PIMCO as a whole. I am curious to know when you--as I said, are one of the founders of the firm. It's been a long and distinguished history.

One of the key things that I think is important to notice about the firm is the way that you've adapted to growth. I don't just mean from a business perspective but especially on the investment side; really both ways in terms of how you manage money but also in terms of how you've grown the capabilities of the firm.

Maybe, you can just give me a few thoughts about that evolution and how you thought about it as it was happening, and what your goals were?

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Bill Gross: Sure. Well, I think it's helped to have had a longer-term strategy and what we call a secular strategy that looks out three to five years. If we were a trading firm, an Arb firm, then it would have been a different story. As we grew to the hundreds of billions, you just can't do that easily, but it's been more effective simply because we have a longer-term view.

And as we have evolved and grown to be a larger percentage of the market. We've recognized, in turn, that there are certain portions of the market that we have structural advantages in terms of liquidity preferences and premiums. We've blended that in as well, and in turn recognized that there are larger forces than PIMCO involved in the market namely these days, the government and, indeed, the economy itself.

So, to the extent that we can look for an exit, be it strategies that take advantage of how we see the secular development of an economy or the secular development of government involvement within that economy which is occurring now. Then, we facilitate excess returns, hopefully.

Eric Jacobson: In terms of growing the organization's capabilities, to use a trite phrase, the human capital, I think the differences may be kind of they don't appear as large to some people from the outside. But, it seems to me that you've worked really hard to develop really great expertise in a lot of different areas.

I am wondering if you can talk a little bit about what are the growing pains with that, and what do you see as the vision there?

Bill Gross: Well, we've gone global, of course, and we did long ago, over a decade ago. The growing pains, I think, are certainly there in terms of the communication gap, the fact that you have to talk to Japan when it's two in the morning and when you talk to Europe at the same time when it's nine at night. So, those communication problems have to be addressed or continually addressed so that's one thing.

The total coordination of the strategy, so to speak, and to a certain extent there is a PIMCO strategy in terms of how we see the world and how we see the global financial market developing. It's hard for several hundred people to be on the same page at the same time, and it causes a certain frustration that has to be addressed.

We've addressed it, obviously, with top notch people with the recognition that the organization is critical and is important because I think that's where many investment firms fall down. They are brilliant people, brilliant thinkers, brilliant strategists, but somehow as they grow and enlarge the coordination becomes the primary fault.

I think we're always focused on that. I'm not the primary person, but as you mentioned, I guess I've been around for the duration. And so, part of that thinking, at least, represents my own thinking.

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