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Wednesday, Mar 29, 2023

Pimco, Bill Gross and Me

Editor’s Note: Pimco Chairman Emeritus Bill Thompson says he’s written his autobiography, “Billy from Affton,” mainly for his grandkids. “This will merely follow a kid from South St. Louis, who attended the local public school, came of age on baseball fields with no grass, and considered dining out to be barbecue in a neighbor’s backyard.” It also provides leadership lessons: “Tough guys sometimes win fights, but the long game often requires listening, compassion and understanding, words not always found in the vocabulary of successful CEOs.” The book, available on Amazon, traces the executive/philanthropist’s colorful life from a small town outside St. Louis to the trading desk of Salomon Bros. to the helm of Newport Beach-based bond giant Pimco to the boardroom of Citicorp. These excerpts begin in 1993 with Thompson being recruited by Pimco. See pages 1 and 27 for the latest on Pimco and Bill Gross.

A half-day visit met my expectations of an austere, deliberate, humorless, rather boring investment shop.

I returned a few weeks later for additional talks with each managing director and a casual dinner party at Bill Gross’ house. It surprised everyone when Bill stood on his kitchen table toasting me and the assembled guests with a cold bottle of Corona. Finally, the human side of Pimco emerged.

Thompson is offered the CEO job and despite some misgivings, accepts.

Newport Beach was attractive with a great climate. I could bring my personal brand of management to an organization that was still in its youthful development. I could advance a global perspective and add some spice to the workplace.

Since my Salomon career was bonds, I had a running start with Pimco’s core business. The challenge would be the people. I spent intensive time with employees listening, asking, thinking and pushing back.

I gained a clear idea of what was here, the hallowed domain of Bill Gross, and three months into the job I took the managing directors off-site to deliver my assessment. I was honest and somewhat critical. In my view, Pimco was a very frugal enterprise holding onto its early days and resisting the need to spend and invest in its future.

It was not well received, including by Bill Gross. Yet, I was hired to be his partner and Pimco’s. I just assumed the Gross-Thompson relationship would take its own course and over time, if it endured, would be successful.

For the next 16 years, it was.

Despite our very different personalities, Bill and I worked closely together, not only becoming professional colleagues but also friends. He might describe it differently. We certainly had our moments: shouting, meddling, taking sides, insults, you name it. But I was not a threat to managing his portfolio nor his emerging TV persona.

I merely was CEO with patience, perseverance, business and people skills, and often a buffer to conflict.

Within a year of Thompson’s arrival, mutual fund advisor Thomson Advisory Group wanted to buy Pimco from Pacific Life.

The decision to sell was Pacific Life’s, but our seat at the table would be a prerequisite to a successful deal. The personal and business future of each managing director and employee of Pimco was at stake. I needed the best legal and financial talent money could buy.

Thompson’s former Salomon partner and rival, Tully Friedman, recommended lawyer Kenneth Poovey of Latham  & Watkins in San Francisco.

I didn’t realize it at the time, but Tully was one of the best phone calls I ever made and one of the best bridges I NEVER burned. And hiring Ken Poovey was one of the best decisions I ever made.

The deal we struck over the next month created a new public holding company, Pimco Advisors LP, of which nine Pimco managing directors borrowed and collectively owned 22%, Pacific Life retained 26% and the remainder was held by public shareholders and Thomson Advisory. Pimco was still guaranteed 45% of annual profits and partners would now hold 22% of a growing company valued at several billion dollars.

We remained independent. Our longtime and talented close friend, Pacific Life executive Bill Cvengros, became CEO of the public holding company and I remained CEO of Pimco. It was a perfect partnership.

Meanwhile, Bill Gross and Pimco were becoming recognized across the financial landscape. His starring role as a financial personality was hard earned and good for business. He depended heavily on his team of quants, technical wizards, idea generators and critical thinkers, yet managing a team with a superstar was not easy. Bill had his colleagues’ respect, but there were regular conflicts.

In these moments, I did not always run interference or soothe spirits; after all, I had seen this before in 18 years at Salomon. Trade room battles were just bond-trader DNA for clashing competition, intensity and ego.

But sometimes, talks on the couch were in order. One partner observed that Thompson’s office was the busiest psychology studio in Orange County. Standing room only. Pressure, long hours, trade room eruptions, promotion and pay disputes made my office headquarters for talking people off the ledge. I used my grounded optimism to convince many colleagues to ignore the noise and have confidence in themselves.

During it all, I was a people person. Bill Gross was not. He was uncomfortable walking into a room full of strangers. He often avoided business lunches, working out at the gym across the street, followed by a tuna sandwich in his quiet office. A brief handshake meeting with a client was fine.

We were both very proud and ambitious Midwesterners in a fierce, stressful, money-driven business. Bill wanted to be the best bond manager in the world. I simply wanted to run the best bond firm in the world.

At times, Bill’s generosity was surprising. He once shocked the entire firm when he chartered a 1,000 passenger Crystal Cruise ship for a 10-day cruise to Alaska with employees and guests. I thought he was nuts, but it was fantastic and a huge morale builder.

By the mid-’90s, Pimco was on a successful growth trajectory. My next strategic priority was global expansion. From my experience at Salomon Asia I knew there were opportunities for bond management outside the U.S., but some managing directors were strongly opposed. At an off-site meeting a contentious debate took place, and with a unified decision in serious doubt, I postponed a vote. Instead, six months later, we began rolling out offices in Singapore, Tokyo and London; we never looked back and we never took a formal vote.

I remained confident of our long-term success but worried about our vulnerability to an unfriendly or intrusive buyer. In 1999, I arranged for Bill Gross and me to meet privately with Warren Buffet in Omaha. We had a good conversation and while he liked our story, he had no interest in owning us.

Soon, to my earlier concern, Goldman Sachs presented a “strategic buyer.” The major German insurance company Allianz wanted entry to the U.S. investment business, especially the bond market.

To my relief, the nearly $5 billion deal was entirely friendly and required Pimco’s concurrence with all terms and conditions. Allianz purchased outstanding shares but issued synthetic new shares for Pimco managing directors. The Pimco brand was preserved, our autonomy was protected, and we had a permanent participation in annual profits.

Bill Gross has moved on from his final years at Pimco and Janus to enjoy the next chapter of his life. We still see each other, and I honestly believe that, had I not retired as CEO in 2009, the disruption and breakage in 2014 might have never occurred. I certainly was not the only person in the world who could work and manage every day alongside Bill Gross, but even Bill would likely agree the list of candidates was short.

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