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Morning Coffee: The portfolio manager who had 40 years of sleep deprivation. And the hedge fund manager who left them wanting more

Dawn near Pimco's office at Newport Beach. No sign of Gross

There’s a piece of folk wisdom on the sell-side that the most difficult accounts to manage are the fund managers based out of California.  Despite the state’s laid back image, Californian clients are always believed to be the meanest and grumpiest people in the market, allegedly because their time zone means that in order to ready for the NYSE open, they need to get up early enough to be in the office at six-thirty in the morning. Yesterday, after forty years of such early starts, Bill Gross of Janus (previously famous as the co-founder of PIMCO) decided to call it a day.

Over the course of a career marked by astonishing achievements in building up one of the world’s biggest and best-performing mutual funds, Mr Gross did a lot to cement this stereotype of Pacific investment managers, developing a formidable reputation for irascibility, as well as for getting out of bed in the silly hoursIn the office, he used to fine colleagues $10k for failing to stand up at the right time, and discouraged traders from talking or making eye contact with him.  Outside, he was notoriously involved in one of the nastiest divorce battles of recent years, involving dead fish and fart spray left in the air conditioning of the marital home, among other gasp-inducing allegations. But across the years, scarcely a single profile of the “Bond King” failed to mention his work ethic, or his habit of arriving at the office well before the crack of dawn, after a breakfast eaten on the way to work while steering the car with his knees.

Indeed, the personality conflicts which led to the breakdown of the PIMCO team and Gross’s departure to a bad-tempered and largely unnecessary coda to his career at Janus might themselves have been founded on bad sleep hygiene.  In his early days at PIMCO, Bill’s eventual nemesis Mohamed El-Erian was even more of an early riser, going to bed at 9pm in order to get up at 1am and complete half a day’s research by the time the rest of the office arrived.  Over the years, though, El-Erian seems to have changed his habits; as an early Fitbit adopter, he started monitoring his sleep patterns and doing something to improve them.

After the move from Janus to PIMCO, though,things seemed to get even worse for Bill Gross as he felt compelled to outperform his former colleagues.  Despite being well past normal retirement age, he began to supplement the four-thirty starts with two or three middle-of-the-night Bloomberg checks on his portfolio performance.  Comparing pictures between 2014 and now, and even making allowance for the effects of age, it’s tempting to say that these habits have taken a pretty serious toll, and they didn’t really deliver the goods in terms of investment performance at the new fund, which started well but had noticeably underperformed the PIMCO Total Return Fund by the time of yesterday’s announcement.  Here’s hoping that tomorrow will be marked by a long lie-in, and many more leisurely mornings to come.

In politics they always say that “it’s better to have them asking why you went, rather than why you’re still here”.  That’s possibly true of fund management too, although the former colleagues of Fir Tree Capital Management’s Andrew Fredman might tell you that either option can end up being tough.  In 2015, at the age of 53, Fredman decided that the trading book had got too large ($13bn) to be sensibly managed by one person and that he was burning out.  So he did what few people who get to that level ever do; he stepped back and walked away.

This high profile departure, ironically, solved the “too big” problem pretty quickly; through a combination of investor withdrawals and a tough environment for value investing as a style, Fir Tree is now down to $5.3bn of AUM.  The lesson is that there’s really no way to make a graceful succession plan for a star manager in a people-based business.  Despite losing more than half the assets and two thirds of the investment team since Fredman’s departure, Fir Tree apparently regard the transition as having been a success and by the standards of Wall Street, it probably was.

Meanwhile ...

A significant job move for Goldman-watchers – Adam Savarese, co-head of leveraged debt trading, is leaving the firm, shortly after the announcement that Justin Gmelich, the executive who hired him from Morgan Stanley, would be going.  It looks like the shake-up of the GS fixed income trading franchise is continuing. (Bloomberg)

A round-up of the bonus season confirms that the gap between pay at US bulge bracket firms versus their European-owned counterparts is widening. (Financial News)

RBC have lost their whistleblower case in London, having to pay £1.2m to John Banerjee, who was fired after making complaints about the compliance culture.  An FCA investigation into corporate culture issues is ongoing (Financial News)

Daniel Swasbrook, former US head of FX, Rates and Credit Distribution for UBS has left the industry, showing up as the owner of a portfolio of gym franchises, and as an investor in the marijuana and CDB space. This may not do much to combat stereotypes of FX salespeople. (Business Insider)

According to James von Moltke, Deutsche Bank may cut bonuses if revenues fail to grow. This might not come wholly as a surprise (Yahoo Finance)

At Credit Suisse, a compliance officer who will literally bend over backwards to help – Guy Lustinger of their know-your-customer team is organising “yoga for bankers” sessions in the Zurich office (Finews)

Rothschild is hiring James Laing, the head of corporate governance at Standard Life Aberdeen, to be the face of its new “investor advisory” franchise, aimed at helping corporate clients deal with activist investors (FT)

Stories of “Rich Kids Lying About Being Rich”, including one anecdote of a student talking about “having to hustle” after being set up with a job at Goldman Sachs (Vice)

A 25% increase in violent crime in the City of London, attributed by several professionals to increased stress as a result of Brexit uncertainty (Financial News)

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AUTHORDaniel Davies Insider Comment

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