How Bill Gross Built a Bond Empire And Then Lost It All

to the show. Thanks for having me. So. I have been covering bond markets for many, many years now, and when you're covering bond markets, it feels like, at one point in time there was no escape from a certain bond investor, and that was a guy called Bill Gross. If you were covering bond markets, at one point or another, your path would cross with Bill Gross in some way. It was either something he was doing, something that he had said that you would inevitably have to write up.

And I don't know if you feel the same way, Mat, Oh, yeah, I mean, in particular, he would write these monthly investment outlooks that were always both widely covered because they were the outlook of an important bond investor about the bond market, but also because he had, like he began them with embarrassing personal anecdotes, and you'd read them and be like, did did this? Did this professional investor really just say that?

And every every month it would like he would top himself, This guy in charge of billions of dollars worth of people's money. Did he actually just write several hundred words about his cat and things like that cat watching him in the shower? I think was yeah? Okay. So Bill Gross loomed large in financial journalists imaginations end over the bond market. And then, of course we all remember when he actually left the company that he had founded, which

is Pimco, and that just exploded into the headlines. You remember that, oh yeah, he went to Janis, which I think to this day remains a joke on financial Twitter when anyone leaves a job that we say that they went to Janis. That's that's sorry, that's exactly right. Um okay. So when Bill Gross left Pimco, there were all these questions swirling around both the man and the strategy and

the company. And I remember writing at the time that there were still all these unanswered questions around who Bill Gross was, what he was actually doing at PIMCO, And I guess someone stepped up to try to answer all those questions. And I am very very pleased to say that today we're going to be speaking with Mary Childs. She is, of course, the co host of nprs Planet Money podcast and also the author of a new book.

It's called The Bond King. How One Man made a market, built an empire, and lost it all And it's been many years in the making. And uh, I'm thrilled to have her on the show. So Mary, welcome to all thoughts. Thank you so much for having me. I'm excited to be here. So one of the things that always struck me about Bill Gross, and maybe this is why you know,

you sort of took an interest in the story. But when people think about bond investing, they normally think about while you buy a bond and you know, you hold it to maturity and it's really really boring. But the thing about Bill Gross, and you go into this in some detail in your book, is that he was doing really complex things in the fixed income world. You know, his funds were full of derivatives, full of future swaps, lots of repo transactions, things that you wouldn't necessarily think

of when you think about traditional plane vanilla bond investing. Definitely, and you're exactly right that That's one of the main reasons why I got interested in this in the first place. I feel like there is this misconception that, oh, my bond fund is managed by like some dork in Boston who doesn't do you know, Banana's stuff, And that's just kind of not the you know, so many of our retirement dollars do go to him, go and end up

doing very exciting things. And yeah, there's there's so much room to to look into, you know, what Buil did and the kind of extremely complicated trades that he put on and the trade structures that I just find it really kind of it's interesting both because of that misconception but also just by virtue of being really elaborate and smart and and fun trades. So one of the most fun trades. And I feel like we could spend the whole odd lots on this because it's like very odd.

In like the mid eighties, he did this trade on Jenny May futures that basically break that market forever. Can you describe that in enormous detail for the odd thoughts listeners?

So this is my Yeah, this is my favorite trade. Basically, there was this futures contract that, um, I think was you know, extremely popular in and people were trading it with a lot of assumptions, you know, the mortgage markets, and nearly very few people feel like they are actually like can get into the particulars and the details and then kind of expand that into the way these things should be traded perfectly, Like like a lot of people

trade on models that they got from someone else or whatever. And I think in this case, PIMCO just really read into the details of the contract and they heard that it was flawed, but they read into it and they

were like, wait, this is really flawed. There were two kind of separate parts of it, two trades basically, where one trade relied on the ability to demand physical delivery and one trade relied on the fact that this this contract had the option for a perpetual so you could ask for it to be converted into a perpetual security that paid you eight percent forever. That makes no sense, I know. So I tried to talk to the guy who built the contract and he was kind of like, no,

it's a great it's a great one. Love that one, by which I understand. But I think, you know, they were trying to make it attractive and rates were really high at the time, So I think there was some sense of like trying to entice people to play in this market in the first place, because again, mortgages were

pretty poorly understood. I mean, there is a real explanation, but also they were still figuring stuff out, you know, like these were new contracts and this is kind of a new frontier, so trying to find out what would work. It was a little bit of trial and error. So

what exactly did PIMCO do in this situation? So you have this new contract and this seems to be a bit of a hallmark of pimco's strategy at that time, but they actually read all the terms, did all their due diligence and research, and basically figured out a way to make lots of money out of it. That's exactly right. So they basically realized that the market was, you know, trying to account for the negative convexity of mortgage backed securities in that that you know, would show up in

these Jenny May bundles. But what they weren't accounting for was the kind of optionality and the fact that if you accrued enough of the underlying the cheapest to deliver, there just weren't that many in the world, and raids had started to go down, so they were going to be fewer and fewer, right, So Pimco realized this kind of before anyone else, and they amassed a huge position in these contracts, and then they demanded physical settlement of the futures, which is to say, they will give me

your cheapest to deliver. Jenny May's right, and they didn't have to demand physical settlement, right, They could have just let the futures roll off, exactly, And that was what everyone kind of expected everyone else to do. So part of what they're playing with here is expectations everyone else's normal behavior, and Pimco seems to always find that there's just a little bit extra performance if you don't act normal. Trade is just like you. These futures are priced assuming

that you deliver the cheapest to deliver security. And they bought so many futures that that they sort of had stripped the cheapest to deliver and like they were getting much more valuable securities. That's exactly right. So yeah, they would go to these people, you know, the counterparties, and say give me your you know, I'm settling now, please to give me the all of the you know, cheapest deliver that you have, and the counterparty will be like, oh,

we don't we don't have enough. You have more than we can satisfy, and they would have to hand over much more valuable Jinny May's just to satisfy the delivery, but the settlement. So basically, yeah, PIMCO was able to outsize the market, which is actually something that you'll see later. You know, they do this trade in different kind of flavors over the years. So this is something that I've been thinking about a lot, and I've thought about a

lot over the years. You know, I said earlier that PIMCO and Bill Gross loomed large over the market, and that is literally true. There was such a massive investor that at times it seemed like their success was sort of mixed up with their size. How much of Bill Gross's strategy and the success that he enjoyed, how much of that came from simply being bigger than everyone else.

I think that's such a good and astute question because people often get that backwards, where they're like, oh, did he underperform because he was too large for the market, And you're right that that it actually was an asset. You know, I guess in equities it's harder to maneuver or or something, but in bonds it definitely can be an advantage, especially in you know, anchoring a new issue bond as it comes to market, you're gonna get more

of the allocation. And those always basically always outperform, you know,

pop when they when they hit the market. So I think it's hard to say how much of the outperformance was due to size and thinking of this paper that to researchers did in that kind of teased out the reasons for Bill Gross and pimcoes out performance over the decades, and that was one of their kind of grab bag items, you know, they were like, this is not something that they were able to strip out as a factor, but it's basically present throughout pimcoes total returns history, where they

were always a bit big for the market and for the mortgage backed market, but we're the big factors. So it's interesting. There are three main ones that those researchers found, and it actually aligns pretty well with what so a source told me, gosh five years ago, because I've been working on this for too long, that there were only four things you needed to know to do well at PIMCO. Theres there are four things at PIMCO does long duration, the curve, focusing more on like the four or five

year part, going long credit, and short ball. That's it. And you know, short ball means selling volatility and finding other ways to kind of embed optionality and leverage in in your kind of everyday life if you will, and avoid buying options to write like like, one thing that he says in some of the outlooks is that he like doesn't want to pay up for bonds with a lot of convexity because like, optionality is not worth anything

to him right right. He wants to be selling it, not buying it because he realizes that people want to sleep at night and he doesn't care. Everyone else wants the optionality and unless he can get compensated over and above. It's in contrast to the Jenny May where there was a lot of optionality, but it was stuff that they exercised. They don't want options just to be able to do what they want to actually do it if they want them, you know. So he like he was the bond king.

He had a great run for decades and then he left to go to Janice. You know, I think it would be fair to say did not continue to have a great run. So like when you when you list those factors, it's like long duration, long credit, you know, short ball that describes a sort of placid market of generally declining that's a strategy for a placid market of generally declining rates, which is kind of what he had for like thirty years. Did he just like miss a

regime change? Was he like a really good investor for like a particularly long bond bull market and then he couldn't adapt? You know what's going on? I think to some extent, yes. And there's this um famous at least to me, investment outlook from April where he asks, am I a great investor? No? Not yet, because he was basically seeing the same thing that you are. That he'd

had a long bull market to invest in. He'd done really well over that time period, but he felt that he was pretty untested, he and all of his peers, right, and you know when he went to Janice. It's it's hard to say because over the longer term, you know, interest rates are lower now than they were then, or they you know, were lower now than they were then. So they've walked around a little bit, right, But from his start date at Janice through his retirement date, you know,

it actually did interest rates date go up. So I do think you're right. I think that that over that period, over his long career, he did have the benefit of a bullmark it. And yes, his strategies I think did perform better in those in that environment, you know, like buying credit, focusing on duration, like all of these things absolutely perform better when you have the wind at your back. Cash and cash equivalent arbitrage kind of is that an abuse of that word? Are you upset? I think it's okay,

this is a safe space. You're allowing that. Okay, thank you. There's a colloquial arbitrage and then a real one, and I'm using the colloquial thank you all accept But basically, they you know, when they had a position that required cash, required them to hold cash against it, a lot of their competitors would be like, okay, cash, great, I shall hold cash, and PIMCO was like, okay, great, and cash equivalence, what do you mean? You know, how how can we

what does that mean? Exactly? And they would go as far as they humanly could to the extent of risk taking in that cash equivalent bucket. So that means, you know, short dated corporate floating notes and making sure that they're getting every last potential a basis point out of that and equivalence bucket, where everyone else is just getting whatever cash is yielding and not sweating it, not kind of going that extra marginal mile to to get the extra

basis point. So I love that. Like he's like this renowned bond investor who becomes a billionaire and at the end of like a bunch of the years in the book, you know, when he's like performing the market, it's like he had a blowout yere in youth asand eight he saw the crisis and no one else did. He outperformed his peers by thirty five basis point. Okay, it was two percentage points actually, as like, but this is like we're like, you know, John Paulson is like tupled his

funder or whatever. Right, like people who like called the crisis, right, you know, the sort of stereotype is that they like started with a little bit of money, ended at a billionaires, but like Bill Grass started with trillions of dollars and like added like two to it um. How does that like, how should we think about that performance? I don't know.

The fundamental thing that I think you're hitting on there is the structure of the trade where a lot of the people that were you know, big short type crisis callers, they structured trades based more on time, where if they had messed up the time horizon, and many of some of them did and didn't make it into the kind of pantheon, the whole trade wouldn't work. So there was

a lot of that was extremely risky. So the Pimco view was, yeah, we think this thing is coming, we have no ability to say when exactly, and we're going to structure a long, a longer term trade around this. Where they both pulled back on risk going into the crisis, and then we're able to scoop things up when things were healing. You know, everyone else was selling it a discount because they're panicking, and they weren't, you know, hadn't

had the same foresight. Pim goes able to buy those assets at an extreme discount and then outperformed for more years. So if you look over the longer time horizon, and this is also Indiana Iversonce Fund and PIMCO income where you see that they not only did well stepping back and not taking the same risks as everyone going into the crisis, but then in the years after. So it's more of a cumulative over many years. But also, yeah, it's just mutual funds. You're going to have less exciting

or you're supposed to have less exciting. You're not supposed

to have a blow out like that. Just on that point, here's a slightly weird question, but do you think that Bill Gross, either knowingly or perhaps by accident, missold what bond investing actually was, because I remember in the early two thousands, you know, he was talking about this idea that if you do it the right way, you can get stock like returns on on bonds which are supposed to be safer, and the way you do it is you use lots of volatility selling strategies and use lots

of leverage and things like that. Is that is that what bond investing should be or is there inherently, you know, a discrepancy between stocks and bonds and the returns that are possible there. I love that. I think there's probably you know, he always got this ding. I think where people called him a hedge fund manager and a mutual fund rapper, and I think that's probably true. You're exactly right. I kind of wanted my bonds to be managed my bond funds to be managed by a Doric in Boston.

Like I'm trying to stay calm here. I don't necessarily want you to be doing Like one guy told me that the consultants used to call this gross cash. They're like, I don't know what you're doing with this cash and cash equivalent stuff and lamb to cash and all these other strategies that they used. It. It was like it's working, so I don't mind. But I'm like, whatever, you're doing, this like weird magic in the market, Like thank you great. I'm not going to look too closely. And I'm sure

you know they're all fiduciaries. Everyone looked closely. I'm sure they did that. But there is an element of like not examining it when it's working and it worked for a long time. You know, it was obviously to your benefit for a very long time. But at the same time, it's like, is this good risk that we're taking? Is this what I want to be doing there? This is

kind of funny. To me where like the cash equivalent thing, there was apparently a pretty robust debate at times about whether or not Russian owners should count in the cash equivalent bucket, saying that right now today it feels bananas, right, like that shouldn't be a conversation. But in other times you can imagine that that's like, it's probably fine, it's

probably fine, we can get away with it. And is that what you want as a mutual fund investor, like with your retirement money, you want to get away with Russian floaters. I don't know. I feel like it's odd lots we should talk about the bond market, but like your book is like partially about the bond market, but it's also a lot about like the human drama of

Bill Griss's overthrow. His character is sort of like he's a genius investor who is not good with people, and he works at this institution where he's not the CEO, he's the chief investment officer, he makes the trading calls, and someone else in charge of management, and yet his managerial style is sort of what pervades the place and what ends up I think getting him outsted. How can you, like, you know, have that guy, run your investments and not

drive everyone crazy. Yeah, I think. I mean it worked for a long time in part because there were people in the CEO position that Bill trusted and respected, and if that's the case, he kind of can or could allow them to do their job and manage people and make executive choices, and he wasn't really going to interfere. He might like snark around a little bit and give them the silent treatment for hiring too many people or whatever, but he's not gonna He generally let them do their jobs.

And I think that's part of it is, you know, in the seventies and eighties and nineties, this was a bit easier because a lot of the people came up with him and were his peers and he respected them. And then when you get Muhammadalarian in the door. You know, there are multiple reasons why that that relationship didn't really work out. Um one being that their personalities are just so different and their managerial instincts and investing instincts are

so different. One reason being that, you know, Bill, you know, there's this this sense that Mohammed at the eleventh hour asked to be co c i O and co CEO Um, you know, he was supposed to just be kind of Bill's air. But I think you know, having that, having someone in that role who he mistrusted, was probably to some extent always going to be a cursed outcome. If you're able to keep the lanes clean and able to to let him just do his job, Yes, it creates

this culture. But I think you I think they were able to navigate around that culture for a long time. Is that there's an open questions to whether that would have been successful even with the optimal chief executive in today's climate where we've done a lot of kind of renegotiation of what we ask from our employers. But but yeah, I think it's it's a matter of like respect and

trust and allowing people to to give each other space. No, I think it's safe to say no. They were kind of trying to project that for a while, and I asked folks on the street, and I asked people inside, and they were like, no, if anything gets worse. So I don't know, take that as you will. So just on that note, I mean reading your your notes as an author, and there's a very funny but also disturbing anecdote about the rumors um swirling around you as you

reported out this book for many, many years. But one of the things you talk about is this idea of the toxicity of that work environment kind of rubbing off on you as you interview all these people who all have their own agendas, who all want to tell their own versions of the history. What was that like. I don't know if this happens to every reporter, but I feel like when I talked to a particularly paranoid source,

I come away just totally rattled. Like I internalize a lot of their anxiety and paranoia, and I just it just stays with me. And these people, the people I talked to you you for this book were largely all like that. I mean, there are some exceptions, people who had got out with their head on straight and retired and whatever. But to a very large extent, the people that I that I dealt with were very competitive, very petty, very

score subtly. And one thing that I kind of didn't appreciate the magnitude of this, but like a lot of people, the events of messed up their profit sharing. Even if they were retired, you know, they had this kind of profit sharing slice of PIMCO, and because of the ridiculousness. You know, Muhammadalarian leaving Bill Girls leaving. It hurt the kind of forward profits for the firm, and people were really mad because it affected, you know, the payments that

they expected to be get anyway. So there was a lot of financial anxiety that came to bear as well, which is like funny because you know, I'm a public radio journalists, so that contrast was a bit sharp at times. There was Matt Knows this story. There was one person's wife who was like, so, what are you going to do with the proceeds from the book? And I was like, um, eat them, Like I don't understand, Like it's my I was like, naughty. I didn't have a day job at

the time. It was literally and and let me be clear, you know this comes in in chunk, so I was living on not a lot of money, and and she was like, well, if you need suggestions for charities, just let me know. And I was like, thank you. I do know of charities personally, but I appreciate the offer and I will consider it. Um, but yeah, there was definitely I don't know that insecurity can can rub off on you for sure, Like I'm not unfamiliar with rumors.

You know, I was in a sorority. Like it felt very familiar to me, but it was also so unsettling because I'm just there to do a job. I'm not trying to hurt anybody. I'm not trying to like take sides, which they all always thought. I'm not trying to like pick favorites. I don't have a dog in the fight.

I just want to tell the truth in this sort of like fight over pushing grass out, like everyone was kind of using the press, where like you know, Gross is obsessed that like his enemies were leaking to the press about him, and then he would call into TV shows or call reporters and say things that in hindsight were really embarrassing. Um, was that fun? I yeah. I mean it's tough because, as you know, I hate being a conduit. I really hate when my entire role in

a situation is simply conduiting someone's thoughts. Obviously, as a journalist that happens a lot. But I like to be able to use my brain and participate and you know the way things myself and come to a judgment. You know, I like to be kind of an active participant in in my job. So to some extent it was it's really annoying to be used as a tool for score settling, and I think it's it's interesting because it's so not

that emotional. It's so not that like, I just don't have a team, and that seems very hard for a lot of people to grasp. Do you feel like after finishing this book you have a better handle on what drives people like Bill Gross and at some of the other executives at PIMCO. So, I know you talked in the book a lot about Gross emphatically said he wanted

to become famous. He wanted to I'm a very very famous bond investor, and obviously he wanted to get rich and he seems to have been very successful at doing that. And then you have a lot of money involved for the other executives. I think towards the end of the book you talked about one of the bonus um pools being something like five million dollars between just Gross and all area and yeah, yeah, which I mean, you know,

half of five million. I'm sure we'll motivate anyone. But given all this revenge seeking and some of the behavior that you wrote about and that we witnessed in and years after that. What do you think drives these people? Mm hmm. I think it's instructive to look at Bill's behavior without the money management, you know, since his retirement, there's this I get the sense that he digs in and he's he's put it that he doesn't back down

from a fight. He can get entrenched in these bilateral I don't know, I don't want to say wars, but you know, in a in a dynamic, in a relationship where he can't seem to find a graceful exit. And I mean that who among us right that been there? But it's it is this kind of you know, you wish that that people can find an exit and and you wish that people can kind of graduate beyond this kind of um allowing themselves to get locked in a dynamic like that. But I do think it is competition.

It's competitiveness. It's trying to prove to someone else that you're the real deal. That's something builds out a lot. And Bill will tell you he did this throughout his life. You know, this is back in true in the eighties when he got divorced. I was trying to date and he always wanted to prove to the last person that they missed out on a good deal. There's there's something

so normal about that. But at the same time, the scale of the competition gets so mind boggling when you start adding zeros and get to five million for one year, Like, yeah, it absolutely becomes ridiculous. But it's those numbers are actually meaningless to them, you know, except in a relative sentence compared to the person that they're locked in a terrible

relationship with. You know. Yeah, I mean I've I've written and talked about this, but like one of my favorite things in the book is like, as like matters are coming to a head, uh, you know, Bill Gross calls him meeting and he like obsessively charts the seating plan and puts like the people he's mad at like not at the main table, and then they get all mad, and like I love the idea that like these people like Wright, the like number of zeros and their paycheck

has sort of lost its meaning and like they're just they're just in the same like sort of like micro status battles as everyone is all the time, and like if they're not sitting at the right table, then they're just mad, and like that's what is motivating them more than like, you know, the hundreds of millions of dollars

they're making. Yeah, you put it um. When we had our chat at McNally Jackson, you had a nice turn of phrase where you were like, they just want to be treated like adults, and they feel like they're being treated like children. And I think that's so true, like the degree of like child behavior among people that we trust as fiduciaries, and not that they were like, you know, not that that makes you godlike or beyond reproached, like of course fiduciaries or human beings, but there is something

a little disorienting about that. There's a former Pimco manager who messaged me right before we started this chat saying that he literally he liked Bill Gross, but he used to speak to him like he was a one year old. Um. That's the way he put it, and they got on fantastically. Apparently. I have so many guesses as to who that is,

but no, sorry, I think you probably know. But just going back to a point that Matt made as well about you know, Bill Gross's managerial style, this was an option that did come up towards the end of his tenure at PIMCO, the idea that well, maybe they remove him from all the managerial stuff, put him even in a different office and just give him some money and let him invest and not have to deal with people, because clearly he didn't like it, and he was arguably

not very good at it. Why why couldn't that happen? Why wasn't that an option? I think by the time that idea was being batted around, it was just too late. Like they had had by that point a year of trying to negotiate an exit for Bill and trying to figure out the best path forward, and it seems like they were just so out of step with each other. And by day I mean Bill Gross and the rest of him Coast Management, where Bill would come to the

table and say, hey, I'm ready to step back. Let's do this and this and this, and they would say, oh great, when can we do it? And then you know, he would, according to you know, my sources, that he would flip flap and say, oh, no, I don't I

don't want that. I never wanted that. And this happened in a bunch of different kind of iterations and in different ways, and um, you know, One example that's a little bit famous um among people that I talked to you is the time when he agreed to meet with a mediator for his relationship with Mohammed Hilarian, and basically he everyone says, oh, Bill agreed to this. Okay, fine, we're going to schedule this. They found a mediator, they started to put it on the calendars, and Bill was like,

I never agree to this. And Bill says, you know, people hear what they want. But I truly he to this day maintains that he never agreed to it. And I agree with him that people hear what they want. But there is this sense of like, okay, but eight people heard you say yes to this and wrote it down, and you know, at a certain point we have to

try to move forward. By the time, the idea was being batted around that they could maybe just give him a pile of money, a little side car as they called it, and let him just play with the money, play in the market, be happy be over there and not bothering anybody his It was almost as though, I think this is kind of his characterization, but it's almost as though his presence was just too toxic, that there was too upsetting to even have him in the building,

but basically that they couldn't. They couldn't. They felt like they couldn't trust him anymore to agree to this plan and stick to it and carry it out, that it would still be more drama, more chaos, more moving the goal post. One implication of the book is that although he was not the CEO, he was to such a degree the star performer that he could he like had the soft power anyway. Like at some point he tells Larya,

I'm gretariat. You don't bet agan secretary. It's interesting because in the beginning, you know, they made such a big deal about the three legged stool of the co founders being equal, but the two other co founders kind of fell away and only Bill was left. And there seems to be this kind of institutional slap where the portfolio managers are the most important, where you know, if you're a client person, you serve the portfolio manager. If you're execution,

everything revolves around the performer. So I'm not sure you know what it does sound like everyone was a bit more collegial back in the day. I mean, still with the same kind of um joking that I don't think I would be able to tolerate. But they but I'm not sure. You know, it seems like towards the end, Yeah, there was this extreme tilt that that made him the leader and made people want to be like him and

act like him. And certainly he's at the tone. You know, you can't if Bill gros says no noise on the trade floor, there's going to be no noise on the trade floor. Do you think that's true? Like elsewhere in the financial industry, Like, like it seems so like ingrained that the person running the money and making the investment decisions is the most important person and the person like during investor relations or like managing HR is subservient to them.

But like, is that is that how it works everywhere? Because like you know, I go back to like Philip gross is at performed by fifty basis points, right, Like meanwhile, people are raising trillions of dollars, right, Like like maybe those people raising trillions of dollars were actually quite good at their jobs. No, I think you're exactly right, And I think this is sort of like a there and there are other like you know, big financial instititions, or

I'd be like, yeah, the investor remissions. People there are really important completely given the perform I are people and bad I are people. I think that's completely true, and that's underappreciated. And I have some views on this given that that's typically where you would find women in the financial industry. Um, you know, for for many reasons as to why that has turned out to be the case, and for you know, and I think that also kind of feeds why we think of it as I don't know,

it's kind of a chicken and egg problem. But I have this argument that um, Pat Fisher should be you know, this is a woman who ran operations at PIMCO. And I strongly believe this is just me. No one has you know, no one else is making this case but me probably, But I shouldn't say that. Maybe some someone out there is making the case. But I have this strong belief that Pat Fisher should be counted as a

co founder. She ran operations at PIMCO. And I was just talking to a guy who used to work there, who you know, doesn't know this theory of mine, but he was like, yeah, you know, PIMCO was so strong in operations and trade execution, and just if you're botching every third trade and calling Goldman and saying, shoot, I'm so sorry, do you mind Goldman's gonna not look to your trades that you know, they're gonna stop trading with you as much they're this person doesn't know what they're doing.

And PIMCO wasn't that and that you know, there are a hundred different times that I do this in the book. But Pat Fisher helped to build the thing that made the company run seamlessly, and that is so underappreciated because

it's back office. And again, I think there's some sexism in there, and um, you know, we we've built a world in which there's this like hegemony of um of portfolio managing or like you know, in the book, there's the scene where Bill Grows blows up at the woman who runs product and says, you're introducing products at the portfolio managers didn't approve and she's like, that's actually not true.

But like you know, when I think about giant financial, like like giant asset managers, like I think more about product than about portfolio management, right, I think, like you know, the person is like, we've introduced a meme themed e TF like that's how they get the money it's not

by like outperforming by ten basis points. And I'm sure I'm exaggerating here, but like that job of like figuring out like what sort of rapper people want things in seems like at least as important as like at performing se of like other you know, investment grade bond managers. I think that's true because if you look back, you know, at products that they were selling in like the forties,

they're not that different, like everything is the same. In the process of reporting this book, I talked to a pension manager who had overseen the A T and T pension fund and he was like, yeah, you know, we were remember being a helicopter like looking at a mall that we were thinking about buying. And then I had a passive strategy and I was like weak, what you were doing a barbell in the seventies? Like where was

I on this? I just wrote this article about how people are doing a barbell and it was like a new thing to me, Like I did I just wake up? Have people been doing this the whole time? And yes, like this is we we put new names on them, we find more tax efficient strategies or whatever. But to a large extent, it's the same stuff repackaged, and you know, as a person picking funds, you're kind of like, I'm clever. I want to pick the thing that's cool right now.

I love a meme. Let's do this. You know what is PIMCO like right now? Because of course they had this exodus in they lost um. I think one of their few senior women they lost were their few senior persons of color, in the form of Muhammad l arian Um. Clearly, Bill Gross's focus was on the total return fund and what was going on with his portfolio management. But as you and Matt just laid it out, products were becoming

more and more important. Um. There was more and more of a tilt towards getting even more passive as low cost as physically possible. Has PIMCO changed much, I'm sorry to report that I don't think they've changed much. I don't think it's um. You know, I think they are working on it, much like a lot of you know, asset managers financial firms are trying to figure out what's gone so awry and why they simply have so few women and people of color like so weird. From what

I'm hearing, it's it's not really going swimmingly. I think it was last year that there was a letter from twenty one current and former female employees saying, you know, this is a we've experienced discrimination here at PIMCO. And I think at the beginning of Pimco had never had a black partner, never not one. They just simply couldn't

find one. And I just find that be on disappointing, right, Like if it's so troubling because if you think through what you know, they think it's a meritocracy, So what does that mean, Like if you take that further, if you go to the like logical extension of that, I just it's indefensible. And I don't think. I don't know.

I think there's this kind of obviously we're having a broad you know, pan industry reckoning with what we do at work and how we feel about work and what we bring to work and you know, what's allowed at work. And I think that's especially acute at a place like Pimco. At Pimco because those old school Wall Street cultures that are so tough and so exclusionary are they just look real bad right now. And to a large extent, I think it's just not tenable anymore. Meanwhile, Bill Gross has

a book out. He's keeping busy beautiful, right, He's he's he's got a book, got a suspended jail sentence for playing the Gilgan's Island theme too long? Has he like what is he having a reckoning with any of this? Like? Is he do you think he's been into respective about like the the last few years and and and uh and about your book. Uh, it's funny. Yesterday I had

my first interaction with Bill in over a year. I had tweeted the Planet Money story that we did Planet Money episode that we did about you know, the Mond King, and he replied to my tweet with a link to his book, which is just stellar marketing, um and and so on brand. But I do think so it's interesting. I have always kind of thought of him as a reflective person, as introspective, as a bit self aware, you know,

to a point among us. But I was talking to a colleague who covered treasuries for ages, and he was saying that it was a performative self reflection or self awareness that actually Bill is It's part of that facade, that persona that he would put on. But actually there there isn't that much real soul searching, which I don't know. I mean, he's been, you know, in his book, he he talks about his ouster. In you know, a recent interview with the FT, he talked about his auster and

what he did wrong, and he definitely has thoughts. So it's hard to It's hard for me to gauge how much of that is truly internalized and like from the heart. But he does seem to find fault with his behavior and that he you know, thinks he maybe should have done things differently, which probably we can all agree. But yeah, I don't know. He's been busy. He's been, you know, feuding with his neighbor, writing this book um publishing it

two weeks before mine, and applying to tweets. What do you think Bill Gross's legacy in terms of the bond market or investing actually is mm hmm two answers. From a pure investing standpoint, I think it is seeing these market inefficiencies, these factors that he identified and was able to ring out performance from for decades, So those were true insights, and I do think that that is, you know, he is the bond king in that way, and and

helped to bring about this revolution. Of active bond trading. And then the second answer would be kind of it's hard to say, and if if a world without Bill Gross would have the same cultural shape, that the bond market would look the way it does, and then that everyone would act the way they do in the bond market. You know, PIMCO is is certainly on the sort of extreme of behavior where they're harder on the street than

everyone else. They're cut throat, they're a little meaner there whatever, um, but and it's I don't know that everyone like necessarily is quite as a serbic in dealing with their Wall Street coverage. But I do think that it was a model. It was a way, you know, people look to him as a role model that he's like on TV talking about his securities and talking his book, and people are like, that is so cool, that's amazing that he can do that.

The beach does something and everybody follows, And that was absolutely you know that that degree of influence was certainly widely admired and emulated, you know, aspired aspirationally emulated. Mary Child, thank you so much. The book again is The Bond King. How one man made a market, built an empire, and lost it. All and you should definitely check it out. This was so fun. So Matt, obviously that was a

fun conversation. And I know you've been sort of involved in the production of this book and acting as an advisor on a lot of um the content, and just I guess providing emotional support to Mary because it sounds like, um she needed a lot of it given the personalities involved.

But one of the things that I find really interesting about at well, one of the things I keep thinking is that Bill Gross was sort of born out of the nineteen seventies early eighties when you finally got a lot of interest rate volatility, which made bonds more interesting and then which gave rise to bond kings like him

and a few others. And I kind of wonder if the period that we're entering now, if we're going to see the same sort of birth of a new asset class or a new group of investors with a slightly different strategy who come out of it really successful. Yeah,

I think that's possible. I do think that one thing that that is true about Bill Gross is that he came up at a time when it was sort of hard to be a famous investor, and he ended up running like a like a mutual fund, which was sort of how you became a famous investor in like the seventies and eighties. And you know, like, certainly there's a lot of volatility in two thousand and eight, and the people who became famous out of that were hedgemine managers.

And I feel like that's where the where the action is for the foreseeable future is like people who can make really kind of bold, concentrated bets rather than running you know, trillions of dollars for like households intentions. It feels like that's where like the celebrities are meant to these days. Yeah, I can't imagine that going back, you know, but certainly there will be celebrities meanted out of this,

you know, out of out of unit today's volatility. Yeah, but probably not your average et F manager or something

like that. But that was the other thing that I was thinking about, was this idea of whether or not the way Bill Gross ran a bond fund was the sort of gold standard of running a bond fund because when you listen to Mary talk and describe you know, his strategy or the secrets of Pimco's success going along credit buying duration, selling volatility, treating Russian forwards as cash equivalents.

I mean, if you think about someone doing that over the past month or two, it's just a recipe for disaster. And so you get that question once again whether or not uh Bill Gross was lucky that his period of being at the helm of a very large investor coincided with very low interest rates in a period of generally low volatility, or whether there was something else there. Yeah, But it's hard to know because like it's not like

it's not like he was born to sell volatility. It's like he came to a reason to complete identified the right for that environment, you know, and like he's he wrote not ites saying like this is how we expect the next ten years to go, and so this is why we're going to be structurally short volatility. And he

was somewhat able to adapt, right. I mean, he ended up not doing as well in in a in a higher rate, you know, sort of different environment than he did during like the sort of long bond bull market. But it's not like he just sort of said it on autopilot for thirty years that had happened to work out, That's true. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on

Twitter at Tracy Alloway. You should definitely follow our guest Mary Child's She's at m d C, and you should follow Matt Levine. He's at Matt Underscore Levine. You should also follow our producer Carmen Rodriguez, She's at Carmen Armant. And you should follow Bloomberg Podcast at Podcasts and the head of Bloomberg Podcast, Francesco Leedy at Francesco Today. Thanks for listening.