Bill Gross wants ‘monster’ bond business at Janus/Henderson

Bill Gross, co-founder of Pacific Investment Management Co. (PIMCO), speaks during a Bloomberg Television interview at the Bloomberg FI16 event in Beverly Hills, California, U.S., on Wednesday, May 25, 2016

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Bill Gross

This is according to Henderson chief executive Andrew Formica, who will co-lead the combined Janus Henderson Global Investors with his opposite number at Janus, Richard Weil.

Formica described the merger, announced in a statement on October 3, as “manna from heaven” for Gross, who shocked markets in 2014 when he left Pimco for Janus.

He told FN: “He’s very supportive of the deal. From his point of view, he wants to create a monster fixed income franchise again and having the greater distribution reach this business provides in his eyes is manna from heaven for him.”

Formica said that Gross will focus on the $ 1.48 billion Janus Global Unconstrained Bond fund he has managed since joining the firm. Since its May 2014 inception, the fund has returned 0.41% as of August 31, according to the Janus website.

Gross set up Pimco in 1971 and saw it become a $ 2 trillion fixed income powerhouse.

His departure came amid boardroom unrest and sent investors running for the exit, with outflows particularly acute for the flagship Total Return fund. Gross is currently engaged in a breach-of-contract lawsuit against his former employers, with Pimco recently alleging Gross had a “sad obsession with attacking his former employer and colleagues”, according to The Wall Street Journal.

Janus portfolio manager Kumar Palghat, who was head of Asia-Pacific portfolio management at Pimco for five years until 2006, will lead fixed income at the new firm. Henderson’s current head of fixed income, Phillip Apel, will work as his deputy.

The merger between Janus and Henderson is expected to close in the second quarter of 2017 and is subject to shareholder and regulatory approval. It will create a $ 320 billion global manager with a market value of $ 6 billion.

The combined group will employ roughly 2,300 staff across the US, Europe, the Middle East, Africa and Asia. According to the firms’ October 3 announcement, the deal will marry Henderson’s strength in the UK and European markets with Janus’s muscle in the US.

On the prospect of redundancies, Formica said: “There clearly will be an overlap in staff and therefore some redundancies will have to happen. It’s way too early [to speculate on specifics]. The exercise and process to go through that hasn’t even begun, I’m sure you can appreciate there is nothing I can go into or talk about at this stage.”

Weil, himself a former Pimco executive between 1996 and 2010, will relocate from the US to London to lead the combined group alongside Formica.

Formica said that Weil’s work while at Pimco had been the “envy of many people,” adding: “I know it may seem an unusual structure [co-CEOs] but it is absolutely appropriate for where we find ourselves. [It will] soften the challenge of running a large-scale business and the cultural challenges of that. If you’re going to have co-CEOs, you’re going to have to work together.”

Another senior role at the new group, that of global chief investment officer, will go to Janus’s Enrique Chang, while Henderson veteran Graham Kitchen will lead the equity investing teams.

The company will also ditch its London listing, moving its primary listing to the NYSE while maintaining its ASX listing. Formica said that the decision had nothing to do with the June 23 Brexit vote. He said: “The NYSE has a deeper pool of available capital and the majority of the group’s global peers are listed there.”

Henderson and Janus shareholders will own roughly 57% and 43%, respectively, of the joint company’s shares. Janus’s largest shareholder Dai-ichi Life has backed the deal. The deal is expected to create cost synergies of at least $ 110 million, fully realised three years after the completion of the deal.

Analysts at the investment bank Jefferies said in a note that the deal “makes sense from a strategic perspective, providing both scale and a complementary product suite and geographic footprints”.

Formica said: “It is fair to say that I think the costs of doing business in our industry keep rising, whether its regulatory costs or whether it’s the growth of passive challenging fee structures. Fees have held up reasonably well but we continue to see at the margin, margin pressure so there are a number of headwinds.”

He said that while many chief executives in asset management talk about a desire to pursue cross-border transatlantic mergers, it has not transpired on a large scale since the 2009 acquisition of Barclays Global Investors by BlackRock.

He said: “People say we really want to do it but it hasn’t actually happened. We’re hopefully able to pioneer and show you can create a truly global brand and business, particularly based on active management.

“Many businesses these days are trying to drift away from their active franchise and either move into passive or alternative areas and we see real value in active.”

With additional reporting by Mike Foster and Rebecca Byrne

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