Gross, who is 70, told Gundlach he didn't want to retire, according to Gundlach. He wanted to keep managing money, albeit less of it.
At the conclusion of their phone call, Gundlach, 54, invited Gross, who lives south of Los Angeles in Newport Beach near Pimco's headquarters, to Gundlach's home about an hour-and-a-half away.
"I did think there could be some kind of 'Dream Team' concept," Gundlach said.
'Too Much Money'
Gross arrived in a chaffeur-driven car the next afternoon around 4 p.m. The two perched in Gundlach's open-air loggia with mountainside views of the Pacific Ocean and for three hours talked about their careers, Gross' travails at Pimco and the possibility of the two men -- both at various times nicknamed "bond king" by the financial press -- combining forces.
Gross came well-informed about Gundlach, saying that his wife, Sue Gross, had probed extensively into the younger man's history.
The results of her research were very complimentary of Gundlach's career achievements, Gundlach said.
Gundlach told his rival that Gross had set the bar too high through years of out-performance that had allowed Gross to build the Total Return Fund into the world's largest bond fund, which at its peak in April 2013 had nearly $293 billion in assets. The fund was now too large to manage, and unfairly even a few years of average performance was now considered a failure, Gundlach said.
"I said to Bill: 'You are running too much money.' Bill agreed, saying 'absolutely, smaller is better.'"
"It was clear that Bill had reconciled himself to the weaker performance being because of the fact that he was running too much money," Gundlach said. "There was no disagreement at all. This change he is making is a good thing for his ability to perform."
In fact, Gross had proposed to Pimco's executive committee that he manage considerably less money -- roughly $40 billion to $50 billion -- and that he no longer wanted to run the flagship fund, Gundlach said that Gross told him.