An unidentified institutional investor redeemed nearly $500 million from the unconstrained global bond strategy managed by Janus Capital Group Inc.'s William H. Gross during the quarter ended Sept. 30, slicing about 23% of assets from the strategy.
Data from eVestment LLC show that the investor redeemed $490.1 million.
The withdrawal marks a setback for Mr. Gross, who joined Janus in late September 2014 after an abrupt exit from Newport Beach Calif.-based Pacific Investment Management Co., the firm he co-founded four decades ago. Since taking the helm of Denver-based Janus' Global Unconstrained Bond Fund and associated portfolios, initial inflows have turned into recent net redemptions.
At the time of his departure from PIMCO, Mr. Gross was managing the world's largest bond fund, the Total Return Fund, which then had $201.5 billion in assets. He also headed the smaller $18.3 billion PIMCO Unconstrained Bond Fund. Issues apparently remain unresolved regarding his departure from PIMCO; a month ago, Mr. Gross filed a lawsuit against PIMCO, claiming that he was forced out of the firm.
When Mr. Gross arrived at Janus, the unconstrained bond fund, launched in May 2014, held about $13 million in assets. In November 2014, about a month after Mr. Gross' arrival, Janus announced that a private vehicle managed by Soros Fund Management LLC had invested $500 million in a separate account managed by Mr. Gross that would follow the global unconstrained bond fund strategy.
By April 2015, the fund reached a peak $1.514 billion in mutual fund assets, according to data from Chicago-based Morningstar. But that amount also included about $700 million of Mr. Gross' own money. To be clear, that total does not include the $500 million from Mr. Soros' fund.
It's not known if Soros Fund Management closed its separate account during the third quarter. Michael Vashon, a spokesman for Soros, and Erin Passan, a spokeswoman for Janus, both declined comment.
But in addition to the closed separate account, Mr. Gross' mutual fund has had $95 million in net outflows since the beginning of May 2015, Morningstar data show.
The strategy had $1.56 billion in total assets under management as of Sept. 30, including separate accounts, eVestment data shows, down from $2.12 billion at June 30.
The Janus fund has underperformed its benchmark since Mr. Gross took over as manager.
The unconstrained fund, a go-anywhere fixed-income fund that also invests in equities has returned -1.64% from Oct. 6, 2014, through Oct. 27, 2015, Lipper data showed. Lipper placed the fund in the 54th percentile of unconstrained funds. In contrast, its benchmark, the ICE Libor 3 Month USD index, returned 0.26% for the same period.
By comparison, the Global Unconstrained Bond Fund outperformed the Citigroup World Government Bond index by 79 basis points, which returned -2.38% in the year since Mr. Gross took over.
Investments have included non-agency mortgages, corporate debt and sovereign debt of Brazil and Mexico. His largest allocation, 43%, is in medium-quality credit bonds, while another 20.2% is in below-investment-grade debt. The fund also has small 8.64% allocation to equity related investments, according to Janus documents.
Citing performance, Mr. Gross' relatively short tenure at Janus and the lawsuit, some consultants have not been recommending the fund to institutional clients.
“We want to be patient and watch the portfolio and see what happens,” said Allan Emkin, the Los Angeles-based managing director of Pension Consulting Alliance. “People in our position have to go slowly and watch this before we make a recommendation. You don't know how it's going to work out.”
Mr. Emkin said he was also concerned about the Oct. 8 lawsuit that Mr. Gross filed against PIMCO. In the suit, Mr. Gross claimed he was forced out by a “cabal'' of executives who wanted a piece of the $250 million bonus Mr. Gross was scheduled to receive in 2014.
Mr. Gross is seeking $200 million in damages in the suit, which was filed in California Superior Court in Santa Ana.
Mr. Emkin said he is concerned that the lawsuit has the potential to divert Mr. Gross' attention from his role as portfolio manager. “It could distract him. Mr. Gross is going to be the focal point of the lawsuit; he is the one who is saying he was damaged and alleging all these things. PIMCO lawyers will spend lots of time asking him questions.”
Another consultant, Michael Rosen, a principal at investment management firm, Angeles Investment Advisors, Santa Monica, Calif., says he's more concerned about whether Mr. Gross will be able to deliver investment-wise for clients in the future. He said he needs more time to monitor Mr. Gross' new strategy and fully understand his investment philosophy before he would recommend it to clients.
“Obviously, he has tremendous experience and a positive long-term record,” said Mr. Rosen, “but this is a new firm and it's a different team. We don't have a lot of data to go on. ”
Mr. Gross has been operating his unconstrained strategy out of Janus' new office in Newport Beach, across the street from his old haunt at PIMCO and separate from Janus' other fundamental fixed income investment teams based in Denver.
Mr. Gross is the lead portfolio manager, but Janus announced in July that it was hiring Kumar Palghat as a second portfolio manager on the strategy as well as acquiring a majority stake in Kapstream Capital Pty., a Sydney, Australia, macro fixed- income manager. Mr. Palghat is chief investment officer and co-founder of the firm. The firm runs its own unconstrained bond fund, which has about $2.8 billion in assets under management. Separate accounts with a similar strategy hold another $4 billion in assets under management.
In addition to Mr. Palghat other members of the Kapstream team, including research analysts, are traveling between Sydney and Newport Beach and assisting Mr. Gross, said Ms. Passen, the Janus spokeswoman. She said 16 team members are involved with the strategy run by Mr. Gross.
She also noted that consultants have been interested in Mr. Gross' Janus strategy, but she did not name the firms.
“We're in active conversations with many leading U.S. and non-U.S. consultants, “she said. “We are very pleased with the interest we are seeing. Some of these firms have met with Bill and the discussions are ongoing.”
Earlier this year, on Jan. 22, Janus CEO Richard Weil — speaking about Mr. Gross' fund during a conference call with stock analysts — said consultants to institutional investors are “famously slow to adopt new things.”
“The efforts to get them to adopt a new global unconstrained fund managed by Mr. Gross is sort of a balance between his ... long-term excellence and huge reputation and their discomfort with new things,” he said.
“That's a daily battle we fight, and they drive us crazy. We probably drive them crazy, but that's the balance.”
Todd Rosenbluth, head of exchange-traded fund and mutual fund research at S&P Capital IQ, New York, said he continues to have questions about the role Mr. Palghat and other members of the Kapstream team play in assisting Mr. Gross with the unconstrained strategy.
Mr. Rosenbluth said questions also remain about Mr. Gross' tenure at Janus, including how long the 71-year-old will ultimately be able to run the new strategy. Given the performance issues, he also said Mr. Gross did not do himself any favors filing the lawsuit against his old employer.
“Investors would prefer he is raising awareness for his Janus strategy rather than focusing on airing dirty laundry,” Mr. Rosenbluth said.
