By Kirsten Grind And Gregory Zuckerman
Before Bill Gross was fully settled in at his new firm, Janus
Capital Group Inc., he received an unlikely visit from the chief
investment officer of famed investor George Soros's firm, according
to a person familiar with the meeting.
That encounter in Newport Beach, Calif., eventually led to a
deal with Soros Fund Management, announced Thursday, that provided
Mr. Gross with a $500 million investment and a stamp of approval
for his new venture.
The investment doubles the amount Mr. Gross was running in his
new Janus mutual fund, which he started after resigning on Sept. 26
from Pacific Investment Management Co., the bond company he
co-founded, after he found out that other executives at Pimco
planned to fire him.
Mr. Gross posted the news of the Soros deal Thursday on Janus's
Twitter account, saying it was "an honor to be chosen" and "an
honor to be earned as well."
For Mr. Gross, 70 years old, the investment is a big vote of
confidence following his abrupt departure from Pimco. Mr. Gross and
a Janus spokesman didn't respond to requests for comment.
The money will be invested in a separate account from the mutual
fund, but will follow the strategy that Mr. Gross is using in his
Janus Global Unconstrained Bond fund, which has $443 million in
assets under management, according to a Janus statement Thursday.
The money will be managed through a private Soros investment
vehicle named Quantum Partners LP.
The new strategy allows Mr. Gross to buy bonds of all kinds but
also bet against certain kinds of debt and use other tactics that
provide him considerable flexibility. That is a departure from the
more narrow focus of Pimco's Total Return fund, which he built into
the largest bond fund in the world.
By investing in a separate account rather than Mr. Gross's
mutual fund, Soros is protected from the movements of other
investors, said Todd Rosenbluth, director of mutual-fund research
at S&P Capital IQ. If there were a sudden investor inflow or
outflow into Mr. Gross's fund, Mr. Soros wouldn't be affected.
"It's a more customized approach to make sure the money is
managed to your time horizon, not anyone else's time horizon," Mr.
Rosenbluth said.
On Thursday, Janus Capital's shares rose 1.8%, to $15.03.
The idea to invest with Mr. Gross came from Scott Bessent, the
chief investment officer of Soros Fund Management, according to
someone close to the matter. Messrs. Gross and Soros have met but
don't have a close relationship, according to a person familiar
with the matter.
For Soros Fund Management, which manages about $28 billion, the
move is a way to invest a large amount of money on a bet that Mr.
Gross will score impressive returns at this new firm, according to
a person familiar with the matter.
Since Mr. Gross began trading in the Janus Global Unconstrained
Bond fund on Oct. 6, the fund has returned 0.083% through Nov. 19,
compared with 0.030% for the Bank of America three-month U.S.
dollar Libor interest rate, its stated benchmark, according to
research firm Morningstar Inc.
Mr. Soros, among the most successful investors of the past
century, gained fame for his bet against the British pound in 1992,
a move that ultimately netted more than $1 billion. He also made
billions of dollars anticipating the global financial crisis that
hit in 2008.
In 2011, Mr. Soros's firm returned $1 billion to outside
investors and focused on investing Mr. Soros's own money through a
"family office," a move that allowed the firm to avoid a higher
level of regulatory oversight facing many hedge funds.
In recent years, he turned his attention to philanthropy and
politics. Mr. Bessent runs the firm day-to-day.
Soros Fund Management invests in dozens of hedge funds, while
also trading for itself. The investment with Mr. Gross's new firm
represents less than 2% of the money Soros manages.
Mr. Gross's departure from the company, where he spent the bulk
of his career and where he was the star manager, sparked more than
$50 billion of outflows from the Total Return fund in September and
October, according to Morningstar.
But Mr. Gross has captured less than 1%, or $430 million, of the
investor inflows during that same period, a small amount that has
surprised some industry observers and analysts.
Rivals like BlackRock Inc. and Vanguard Group appear to have
seen a larger amount of the inflows.
Russel Kinnel, director of research for Morningstar, said the
move was important for Mr. Gross, in light of his weak inflows at
Janus.
"It's important from a symbolic side, rather than an impact on
[Janus's] earnings," Mr. Kinnel says.
Write to Kirsten Grind at kirsten.grind@wsj.com and Gregory
Zuckerman at gregory.zuckerman@wsj.com
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