3 reasons why Quantum would never hire Bill Gross - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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30 SEPTEMBER 2014

Bill Gross is the global guru of the bond fund world. He put the world of fixed income centre stage and educated millions of retail individuals - and sophisticated institutional investors - to appreciate the workings of the fixed income market and the opportunity to earn decent rates of return from investing in "boring bonds". As one of the founder of PIMCO - later acquired by global insurance giant Allianz in 2001 - Bill Gross was the fund manager of The Pimco Total Return Fund, the largest bond fund in the world which has over USD 200 billion of client assets and has - since its launch in 1987 averaged a rate of return of 7.9% per annum v/s 6.8% per annum for the relevant index. While the Fund's stellar performance earned Bill Gross his superstar status - giving him the same level of publicity granted to a Warren Buffet and Peter Lynch from the equity world - the performance of the Fund has slipped recently. Clients had started leaving the Fund.

On September 26, Bill Gross stunned the world by quitting Pimco/Allianz and joining the equity fund house of Janus, which is keen to build its "business" of bond products.

Sorry, Bill, no job for you!
Despite his stellar background, if Bill Gross had bothered to send us a resume - we would never hire him. To clarify, I doubt a star like Bill Gross even knows who we are - and even if he did, we would not be able to afford him ☺

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And here are 3 reasons why we would never hire someone like a Bill Gross:

  1. Bill would be a misfit at Quantum AMC and would be a risk to the culture we have diligently built as managers of the Quantum Mutual Fund. While we love having intelligent people join us - we don't encourage any sort of "superstar" status. Sure, every business needs a "face" and while I may have been the "face" of Quantum AMC in the initial years, Subbu has increasingly been presenting at our 'Path to Profit' meets - which our passionate appeals for rational, long-term investing. As many attendees of the pulsating 'Path to Profit' meets know, there are many occasions when the fund managers are the main speakers and neither Subbu nor I are there. We don't believe that all knowledge and genius should lie (or does lie) in one or two people. We don't like stars. We love groups who can think collectively, build processes, and work for the benefit of our investors.

  2. Our view on investments is generally focused on the long term. While all individuals eventually die, processes can stay on forever. Henry Ford died but his contribution to modern production systems stayed on forever - and has been improved along the way. Sometime bad processes can perpetuate forever, too. Indira Gandhi died, but her contribution of encouraging her party men to focus more on "what's in it for them or the Party" rather than what's in it for the country, has lasted longer than the Congress Party has. And, as occupant number 7402 of Parapanna Agrahara Central Prison in Bangalore proves, this "mera desh, mera peyt" attitude has been widely adopted by every regional and national political party and politician populating the raped Indian landscape. The point is that Bill Gross never spelled out his process and named his successors. It does not look like he shared the stage with them - or push them in front of TV cameras while he faded away to the background. Individuals who invest in a Fund because of the genius of one man or the "star fund manager" bear the risk of that man losing his skill (Bill Gross had poor numbers recently though, admittedly, even team-led processes can have poor numbers). The other risk is that a person will die and leave no successor. Or a star may leave the Fund for some other fund house. While genius can create, process can procreate for the long run.

  3. Bill Gross may be brilliant. But, in addition to the obligation to his clients to build a succession plan, he had an obligation to those who worked with him and for him to teach them what he knows. Those with knowledge need to share with those with less knowledge but a hunger to learn. The best teacher is the one who makes the students smarter than her. Star fund managers don't get this part of the "deal". They are self-centred. Because they wish to remain stars, they will never allow smart people to rise and achieve a higher status than they have - ever. This is dangerous for the investor - and the fund management company that hires them. The younger, more energetic raw talent will prefer to join a fund house that has a process of mentoring.
In the short run, stars attract money and flows and all the goodies and higher bonuses that come with those flows.

But this is of little interest to us at Quantum AMC.

If Bill Gross had a brilliant track record as a creator and builder of teams, we would have a serious discussion with him about joining us and helping make our fixed income team even better than what we believe it to be today.

But brilliance - matched by a desire not to train the next generation in good practices and principles of investing - is a cocktail for disaster.

Sorry, Bill - no room for you here at Quantum.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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3 Responses to "3 reasons why Quantum would never hire Bill Gross"

Sunil Doshi

Oct 6, 2014

Views of Shri Harit Shah & Mukul look valid.I would not be very disturbed by "Self-serving attitude" as I understand that Equitymaster clients are educated enough to avoid traps
,if any. Mr Dayal, larger Issue of sucession is MUCH more thought provoking and Sincere. Many Industrialists,Actors and even politicians have not thought/worked on this angle.We find all their sibling fighting in public as a Result(and destroying Assets).Mr Dayal, has shown way to analyse any Institution!!
including an AMC.Hats off

Like 

Mukul

Oct 1, 2014

Ajit, this is a self serving piece. Not having any knowledge whatsoever about Bill Gross, I can not imagine him earning index-beating returns for 27 years without having solid processes and teams behind him. For every star, there is always a team to back him up, and you are being short-sighted in ignoring this fact.

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Harit Shah

Oct 1, 2014

With due respect, its quite obvious that Mr Gross will never know what Quantum is, so I fail to see the point of writing in such a self-aggrandising manner about whether or not Quantum would recruit him! His salary of reportedly US$ 200 million a year is probably more than the total AUM of Quantum AMC!!! Now, we can argue whether that salary is excessive or not (indeed, one of the trustees of the fund, Mr Popejoy did object to this salary earlier this year), but the point is that it is being written here as if Quantum is actually a place Mr Gross would even consider joining - you can't possibly consider joining a company if you aren't even aware of its existence! And again, that ridiculous sanctimoniousness that flows through the article, specially at the end - "In the short run, stars attract money and flows and all the goodies and higher bonuses that come with those flows. But this is of little interest to us at Quantum AMC." The way you keep writing in all your articles, you make it sound as if you and your team are all saints and would even be willing to work for free!!! I have great respect for Mr Dayal, for what he has achieved in the industry and for his ability to speak his mind against what is undoubtedly a highly corrupt and unethical industry (our industry - finance), but frankly, his constant sanctimoniousness and 'holier than thou' attitude is getting exasperating. Quantum itself has also started focussing on money through now getting into derivative products and many things other than its 'core business' of 'long term equity research', so quite clearly you yourselves are now in the same basket as the rest of the industry. The sheer quantity of reports you (Equitymaster) publish every year is going to lead to a lack of focus on the quality of companies you cover and this is NOT GOOD for your customers, the retail investors whose interests you claim to serve! Food for thought indeed...

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