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Saturday, Jun 15, 2024

The Bond King Turns to Equity

Bill Gross used to oversee trillions at Pacific Investment Management Co.

Nowadays, the retiree is managing $400 million for his foundation that launched late last year—the Laguna Beach-based William, Jeff and Jennifer Gross Family Foundation. Separately, he also oversees his own personal wealth, which the Business Journal in July estimated at about $1.2 billion.

Since his foundation must distribute 5% of its assets annually per the IRS, or about $20 million, he must get a 5% annual return to keep even.

That means the man who became famous as “the Bond King” is looking elsewhere for returns, particularly stocks that yield dividends.

“Bonds don’t yield anything—they are far below 5% requirement,” Gross said. “Dividends are much more important.”

At one time, Gross was one of the most acclaimed investors on Wall Street, where he was Morningstar’s three-time bond portfolio manager of the year and for the 2000s decade. He presciently predicted the housing crisis that caused the 2008 financial crisis and PIMCO’s performance in that time resulted in its assets tripling to $2 trillion.

He departed Newport Beach’s PIMCO in 2014 in an acrimonious split that was eventually settled with his charity getting a reported $81 million settlement from the company he co-founded in 1971. After a 48-year career, he retired in March from Janus Henderson Investors where his returns were subpar compared to PIMCO’s.

$800M and Counting

Gross, who once built his worth to an estimated $3 billion, has been giving away money for a long time.

The foundation he had with his former wife, Sue Gross, donated more than $800 million. Their names adorn buildings at the University of California-Irvine and Mission Hospital Laguna Beach. Gross is “very proud” of his $4.5 million in donations over the past two decades to recognize outstanding Orange County teachers. He sometimes also gives up to $15,000 anonymously to individuals “to help put them back on their feet.”

“Some of the most fruitful things I’ve done is give money to these worthy individuals,” he said. Giving to “people in need is like a shot of adrenaline to the heart. It makes me feel I’m doing something worthwhile.”

Gross’ new life partner, Amy Schwartz, is a former world-ranked professional tennis player. The pair moved into one of Laguna Beach’s best-known coastal properties, Rockledge by the Sea, which he purchased for her as a surprise. He also threw her a 50th birthday party that included a performance by one of their favorite performers, Kenny Loggins. Gross also sang his own rendition of Randy Newman’s “Feels Like Home.”

These days, Gross no longer wakes up at 3 a.m. daily and instead sleeps in until 6 a.m., admitting that he sometimes occasionally sneaks a peak at 1 a.m. to check Tokyo and European markets.

“I stay in my office till 9:30 or 10 and move over to the golf course,” he said. “That’s semi-retirement.”

No Recession Foreseen

Gross is sometimes called on for finance-related television appearances, such as telling CNBC business channel in October that he “hopes” President Donald Trump won’t be re-elected and believing Elizabeth Warren will be the Democratic candidate. He doesn’t see a recession in the coming year, although growth is slowing.

The 75-year-old is also back to writing a newsletter, which was often read widely on Wall Street, including by the world’s most famous investor Warren Buffett. His personal website—williamhgross.com—includes those newsletters.

“Many of them are very good, some are controversial, some are goofy,” Gross said. “They reflect my life’s philosophy—mainly for the benefits of my kids.”

In his latest newsletter, Gross used “Saved by Zero,” a song by the 1980s band The Fixx, to illustrate how rates that don’t pay interest have helped the world’s economy.

“Bull markets in equities are born by lower real rates and the historic run of the past decade has been fertilized by the journey to zero,” Gross wrote in the October newsletter.

“Prepare for slow economic growth globally and an end to double-digit market price gains of months and years past. High yielding, secure-dividend stocks are what an astute investor should begin to own. Markets and economies may have been ‘Saved by Zero,’ but ‘The Fixx’ has seen its best days. Music and central banks have run out of pizazz.”


He knows other foundations might face problems generating a 5% return nowadays and they might “stretch” to get that return by making riskier investments than bonds.

“You’ve got to be very careful,” he said. “The things I own are really good investments. I’d caution investment committees to be careful about stretching. Almost all assets are overvalued.”

His strategy is to buy higher yielding stocks, particularly those that aren’t part of indexes, such as mortgage real estate investment trusts that have yields in the 8% to 10% range.

He’s invested in companies such as Annaly Capital Management Inc., Invesco Ltd. and Dominion Energy. He told CNBC that he’s in an arbitrage play on once-local giant Allegan PLC, which is being bought by AbbVie Inc. He recently bought stocks such as Japan Tobacco Inc. and British Telecom that have stocks yielding 5% to 7% dividends.

The longtime bond king doesn’t plan on joining another firm.

“There’s comes a time for all of us,” he said. “I’ve put in a lot of time. I’ve done my thing, I’m very content doing what I’m doing now.”

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Peter J. Brennan
Peter J. Brennan
Peter J. Brennan has been a journalist for 40 years. He spent a decade in Latin America covering wars, narcotic traffickers, earthquakes, and business. His resume includes 15 years at Bloomberg News where his headlines and articles sometimes moved the market caps of companies he covered by hundreds of millions of dollars. His articles have been published worldwide, including the New York Times and the Washington Post; he's appeared on CNN, CBC, BBC, and Bloomberg TV. He was awarded a Kiplinger Fellowship at The Ohio State University.

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