The (Hedge Fund) Evolution of Bill Gross
Sep 13th, 2007 | Filed under: Institutional Investing, Media Coverage of Hedge Funds
In a story about Mohamed El-Erian on Wednesday, The Wall Street Journal reports that:
“…in his newly created role, Mr. El-Erian will help expand the firm’s product line and increase the role of alternative investments such as hedge funds, according to Mr. Gross.”
If this is true and PIMCO is planning to offer hedge funds, it represents an about-face from only a few years ago. In an August 2004 commentary (”Lemonade for Sale”), PIMCO boss Bill Gross had this to say about hedge funds:
“A good fisherman knows that if the fish aren’t biting you change the bait and a good salesman knows that if you can’t sell lemons, push the lemonade. So it is with today’s craze for hedge funds.”
“While I haven’t come to praise hedge funds, I won’t be the first to bury them either. In any event, their undertaking won’t need a Bill Gross, Jim Grant, or William Donaldson to do the dirty work.”
“…if you’re thinking about a hedge fund to bolster your portfolio returns, give it a long think. They’re risky and they’re generally overpriced. You can do better elsewhere or even on your own.”
Two years later, in November 2006, Gross seems to have come around to the fact that hedge fund strategies couldn’t really be ignored. He said that if PIMCO played its card right by adopting just a teeny bit of leverage,
“…PIMCO clients would get more return and come a little bit closer to those higher single digit numbers that supposedly only hedge funds and private equity can produce. And they would get it, by the way, with fees at a fraction of the alternative. Does this mean that PIMCO wants to turn itself into a hedge fund on the cheap? Hardly.”
And here we are today, with PIMCO reportedly counting on Mohamed El-Erian to “increase the role” of hedge funds. Will PIMCO keep costs down and offer ”hedge funds on the cheap”? Stay tuned.
