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The book offers a fairly tedious description of a toxic work environment and focuses too much on a character assassination of Bill Gross. Hard to decipher for someone with only a passing interest in stories of financial hubris and not much knowledge of bond trading.
NPR’s Planet Money host Mary Childs has written a biography of Bill Gross and PIMCO, the investment firm he founded. Fresh out of the UCLA Anderson School with a newly minted M.B.A., Bill Gross was hired to work as an investment analyst in the sleepy bond department of Pacific Mutual Life Insurance Co. It was there where Gross comes up with the then novel idea of trading bonds for total return, rather than holding them till maturity.
As the concept takes hold in the inflationary 1970’s, Gross begins to outperform other bond managers and he attracts a swath of institutional investors as PIMCO is spun out of the life company. By 2000 Gross is a star money manager and 70% of the company is acquired by Allianz, a German insurance giant.
Gross makes his bones by using futures, options, and all sorts of derivative instruments. He generated super returns in 1983 by arbitraging the difference between the futures price of GNMA securities and the underlying cash market where he cornered the market on the cheapest to deliver security. Yes, I know this is arcane bond market stuff. In 2002 Fortune Magazine names him the Bond King.
Later in that decade Gross was way ahead of the curve in predicting the mortgage melt down that was to come. He sent his people out to pose as home buyers to get a better understanding of the deteriorating underwriting standards for mortgages which led to a stellar year in 2007.
Gross then brings back Mohamed El-Erian from Harvard Management as his co-chief investment officer. Never mind that El-Erian’s international bond fund suffers from horrid performance. Of a sudden Gross became paranoid as El-Erian appears to be a rival. He became erratic and his performance suffered. So much so, that in 2014 his very own executive committee stages a palace coup and ousts him. He goes down hill from there and in 2016 his wife of 40 years divorces him.
Childs is very good at explaining PIMCO’s culture. Unlike the boisterous trading floor at sell-side firms and many buy-side firms, PIMCO’s trading floor is silent. There is no chatter among the traders; they communicate by email. As a product of the sell-side culture, the quiet trading floor seems outright weird.
My criticism of Childs’ book is that she leaves out quite a bit and makes a few big mistakes. In order for trading strategy to be successful you need counter parties willing to trade. At the same time Gross was starting out a revolution was taking place on Wall Street. Mortgage securities were being invented by Salomon Brothers’ Lew Ranieri and First Boston’s Larry Fink. Over at Drexel, Mike Milken was bringing into being the high yield bond market that enabled leveraged buyouts which had the effect of converting investment grade corporate bonds into junk overnight. Thus, the days of buy and hold were over and active trading became the norm in the fixed income market. Simply put Childs leaves out the milieu Gross was trading in.
Childs cites the reason for Pacific Mutual’s move to Orange County from downtown Los Angeles to Newport Beach in Orange County as lower rents. That is wrong. The real reason is that the WASP power structure in Los Angeles was losing relevance in the post-Watts riot era. The ascendant Black-Jewish-Latino coalition was taking over leaving less room for the power barons especially Asa Call, its CEO, at Pacific Mutual. She also characterizes Orange County as “barren strip mall desert,” which is so far from the truth. Only a snobbish east-coaster would make such a comment.
Nevertheless, aside from my comments above and aside from my view that her book takes on the feel of a very long magazine article, Childs offers up an interesting history of a finance titan in his time and place.
As a casual follower of finance, I had heard the name Bill Gross multiple times and remembered being surprised at hearing he left PIMCO because I thought he was the founder. Mohamed El-Erian is another name that I was familiar with but did not know much about. When I heard Mary Childs on the The Compound & Friends podcast explaining she wrote a book on this subject, I eagerly purchased it to learn more. (Great podcast too).
I was left very disappointed. There is little about finance or bond trading. The book is one overly long description of the toxic work environment and constantly explains how Bill is such a weird guy. Childs goes to lengths to record specific details, but has to use multiple asterisks and rely on what lawyers told her because the actual people were not interested in speaking with her. I lost interest somewhere in the middle. I finished reading but the tone did not change.
I know more about the characters than I did, but this was not an interesting biography or story like I had hoped.
I found it ironic how the author goes to great lengths at the end of the book to highlight how long and how many years it took to write the book. This was an entirely superficial piece about about Bill Gross and PIMCO. The recurring themes are PIMCO was a toxic place to work, Gross is a weirdo, Gross and MEE were both massively overpaid, and MEE is a prima donna who added little to PIMCO other than a lot of TV interviews. I didn't learn a single thing about what was special about Gross that he was able to grow PIMCO to $2 trillion. What did he do besides workout, yell at people, give interviews and concoct conspiracy theories. The other really annoying thing was the repeated use of a footnote to attribute something to MEE's lawyers. Why?
The Bond King is a detailed look at the history and drama inside PIMCO. The author focuses on the eccentric Bill Gross and his stewardship of the Total Return fund that brought PIMCO to prominence. The Total Return fund was a big macro bet on the increasing price of bonds, that the government would backstop markets and that derivatives and embedded leverage could be used to juice returns above a benchmark of players that didn’t employ them. The author also spends a lot of time exploring then complicated personality of Bill Gross, the culture of PIMCO that resulted and the drama of succession. Bill Gross’s public persona clearly impacted PIMCO’s rise to prominence, but also cost the firm.
Childs paints the vulgar, eccentric Gross in sfumato prose that is delicate and beautiful, like my ex wife Ann. It gripped me and was difficult to put down, like Ann during our last spat. Ann if you’re reading this please answer my calls I miss you dearly. Very well written for financiers and laymen alike!
Fascinating book on people, greed, leadership, fame, and being happy. The most interesting part to me was Bill Gross himself. Often to be successful in this world you have to have a certain win at all costs mentality that will make you work 80 hours a week and ignore everything else. It's probably not healthy but that's often what it takes. This book follows the trials and successes of Bill Gross as he looks for fame. I'm guessing a lot of companies have these all-out wars occurring on a daily basis. They are just well hidden. It doesn't look good to the investors.
Bill Gross reinvented the bond world turning it from a stodgy backwater into a fast paced industry. On its face this seems a dull-as-dishwater saga to people who aren't intrigued by finance. That is most assuredly not the case here.
Mary Child is a brilliant writer. I had no idea -- I've only run into her work in audio journalism. She's funny and insightful and uses this fast pace biography to do much more that paint a very unvarnished portrait. She gives us a tale that involves many characters and explains their relationships quite cannily.