>> bill gross's note to prove he's still got it, that he still has the touch that made him one of the greatest investors of all time. the one-time bond king tells me how he defines success, how he invests his own money, and how he is giving away his multimillion dollar fortune. on this special edition of bloomberg's "encore." mr. gross: i thought somehow i might have lost my touch. what effect it could have. that's half $1 billion. >> welcome to encore.

bill gross earned his reputation -- no one managed more money or could match his performance. he built a $2 trillion powerhouse and personally ran almost $300 billion. his rise it seemed unstoppable and his fall was sensational. the lost a power struggle and after four decades, was forced out. last september he joined a generous capital and now manages an unconstrained bond fund. he lives in newport beach , california. we started with the obvious -- why, at 71, is he still doing this? mr. gross: one of the reasons i am still doing this is to prove that i still got it. maybe a 38-year-old quarterback can run and take a super bowl so it feels great. eric: to whom do you need to prove anything?

mr. gross: that is my particular problem. i understand intellectually that not many people care. my wife is the one who has to put up with me. it is an obsessive thing that formed me and helped formed panko. you can figure it out intellectually. eric: surely you must get that there are people who wonder why bill gross, after building a track record as most successful bond manager ever would be doing this. mr. gross: i didn't like how i left, so to speak. and i didn't care for the idea that i might have lost my touch. i don't think i have lost my touch. i am in this seven days a week 18 hours a day.

that speaks to interest, and hopefully it speaks to competence. erik: how are you going to find success for yourself? mr. gross: more by performance than assets. i would love the assets to grow. when i came to janice, it wasn't with the intent of creating a tool. i recognized that it would take 20 or 30 years. it didn't mean that i didn't want to develop assets. it did mean that i had a reasonable sense of organization in the future. -- and the future. success for me will be defined by performance, existing clients. erik: if it is not going to be another pemco, how big would you like it to be? erik:mr. gross: i have no idea.

we have about $2 billion right now. george sars called me two days after i left pemco and asked if i wanted to manage half $1 billion. erik: is there a point at which it becomes too big? mr. gross: i think so, in terms of active management. this is not to diss pemco, who had close to $2 trillion, and that is big. other institutions are big too. i will only say that it is easier with $2 billion to move money. liquidity is obviously better. it is less onerous in terms of organization and decision-making, where you have to build up a consensus and a consensual outlook in terms of

what you want to do. that doesn't mean it's relative to pemco. it's the best of both worlds and it is good to get feedback and to get a counter argument. but there is a situation here in janus where i can do things that i think will make money. erik: tell me more about that. the opportunities, if you will the benefit of being small, of managing billions as opposed to triple digit billions. erik: i have to use pemco to compare. we did something that the press would observe at the end of the month or the end of the quarter, but the market would note -- you can do billions of dollars in

trade without word spreading. the state of california was the big cheese. everyone was always asking -- what are they doing? that is one of the disadvantages of being big. it gives the market the opportunity to work against you, or two anticipate -- or to anticipate going forward. erik: coming uperik:, bill gross tells me there is only one thing better than outperforming the market. les find out how much of his wealth he has given away. mr. gross: it is not staggering. ♪

erik: welcome back. investors ask only one thing from a fund manager -- performance. and that is all bill gross used to ask it himself. now that he is 71, he faces success in different terms. mr. gross: i define success differently now than five or 10 years ago. success in the early years was business-related, asset growth related. family was related to how

will your kids did on the soccer field. these days the children have grown and are doing their own thing. we are very much connected with their success but my wife and i have embraced our family and now success becomes a function of what we can do with the rest of the world. to help others and to prove that some of the prior success can blend into success for the future. erik: like what? mr. gross: we are donating to stem cell research. six or seven years ago university of california irvine the research center -- we recently connected with duke

university in terms of stem cell and alzheimer's. we are frequent donators to hospitals and hospital foundations. we funded an emergency center and one of these days, i probably would be a patient for those types of things. i'm concerned with the situation in africa and other activities. success these days is still performance. i'm still obsessed with that. but it is also the benefits to other parts of the world. erik: why, then, don't you talk more, or haven't you talked more, about your philanthropy? mr. gross: i try to keep it

quiet. not that there's anything wrong with it but i'm not the type to attend functions and parties and galas. we like to work underneath, so to speak. erik: quietly. mr. gross: because we like to be in bed at 7:00 at night watching "jeopardy. " it's quiet because we are quiet people. there is a mexican restaurant just on the corner. that's just the life that we pursue. erik: i will ask you what sounds like a cross question -- how much money have you given away? mr. gross: well, at this point probably 600,000,000-700,000,000. $600 million-$700

million. erik: really? mr. gross: that's the second largest philanthropic organization. erik: goodness. do you share the same goal that other people have, that by the time it's all said and done i would like to give it away? erik: certainly in terms of the foundation. i have three kids between 26 and 42. they will continue the effort. we will give everything that we have other than our home away to either a philanthropic cause or to the foundation. erik: that could amount to billions. mr. gross: yes. which is staggering, even to me. erik: really? mr. gross: i tried to explain it

to sue. we talked about stocks in trading. it is really hard to think in terms of how much it is and what effect it could have for others in terms of benefiting them. there is a program i am looking into now called to give directly, in which you can contribute a small amount or a large amount of money to individuals in uganda, in which money is transmitted directly to individuals via cell phone. erik: mobile money. mr. gross: most of them have cell phones which is hard to believe. if you can do that and contribute $25 or $50, to people you haven't met boy. that is almost as good as outperforming the market. [laughter] erik: almost. tell me bill -- how is it that

you have been able over the course of amassing your fortune to remain modest, if you will? why are you different? mr. gross: i guess most of the credit to sue. sue helps me be grounded. she watches every little penny. erik: that is a lot of counting. [laughter] mr. gross: that is what i tried to tell her. i keep telling her, i say we have to get a move on. five or six years less. that is a lot of counting that has to take place before, at some point, you're not quite sure what you are giving. erik: when we return bill gross on how he is investing for janus and investing for

himself. ♪

erik: do you feel less of a needed to trade derivatives now than you did previously because of the fact that you are smaller? mr. gross: actually -- because of how i constructed the unconstrained fund, it basically

keeps all its money in terms of cash and yields 2%. you overlay your derivatives. i see it in terms of a pie. the cash goes into the crust and the crust yields 2%. but the filling is the derivative space. if you can overlay derivatives by 2% or 3%, that can produce a 5% to 6% return of the unconstrained fun, which is what it is on target for. no results guaranteed. erik: unconstrained has become something of a dirty word in some quarters. what does unconstrained mean to you? mr. gross: for five years ago it was a word that was a

solution -- bonds were about to have a bear market. investors wanted to say, hey, if i'm going to buy something that is going to go down in price, i need a different alternative to duration space and that is where unconstrained came from. let's talk about credit, about volatility, about liquidity, in terms of the filling relative to the pie. if you can have 300 or 400 basis points, and not lose any money. erik: how far are you prepared to go with the freedom that it offers you? how far up the risk curve is comfortable for you? mr. gross: we have a lot of junk in the unconstrained font -- not a lot of duration.

on the other side, it is only levered a two to three times. how did it all come together? hopefully it comes together with a price volatility that is close to a low duration bond fund, but not necessarily. erik: what are we going to see bill gross buying stocks? mr. gross: oh. the unconstrained fund has some stocks and it. there are certain arbitrary situations that yield. . two to 3%2%-3% on an annual basis. very little risk, probably about 6% of the portfolio. erik: what is the max? mr. gross: 10%. i don't like arbitrary types of funds.

you can only pretty much slamdunk the fund. erik: i'm curious to know -- now that i have learned this -- how do you manage your personal money? clearly some of it is in an unconstrained fund. mr. gross: it seemed like a natural situation. the rest -- i manage it for the foundation as well -- a lot of closed and funded territory, not necessarily liquid. an environment in which interest rates are low. those funds can level to a certain extent. you can get a 6% return instead of a wide variety of closed in municipal bonds.

those are some of the vehicles -- i will take it and check it out and then watch the playoffs hockey or basketball or whatever and find new, good ideas. it sounds boring but i love it. erik: are you in private equity? mr. gross: no. erik: public equity? mr. gross: mildly, in your old standards. proctors and standards. erik: before we finish, there's something i'd like to know. you seem happy. are you happy? mr. gross: yeah. i am getting happier. four or five months ago was a low point, but everybody has low

points. i'm not suggesting that it was the lower of lows. my wife daly told me to get over it, -- my wife daily told me to get over it. i am happy to be with sue to have a family that is healthy. every time we walk on the weekend -- none of my kids have ever had broken bones or accidental -- we have been really lucky. it gets to a point where if you are not happy with that situation, you pack it in. erik: how would you describe your quality of life right now? mr. gross: i would start with my

health -- i am healthy. that is high-quality for a 71-year-old. the quality of life from the standpoint of the financial situation -- there was a saying that i always try to remember. happiness is a function of finding something to do, someone to love, and something to hope for. i got something to do, someone to love and i've got something to hope for in terms of my family the things we are doing with the foundation. and yes, with performance going forward. erik: so long as you are still

performing, still proving to yourself that you still got it will you keep doing this ad infinitum? until whenever? mr. gross: as long as i can stay healthy. i will say that i do know that tension comes with this job, it is not health creating. it is like being a pro football player -- the concussion you got five years ago can on. -- can haunt you. as long as i can get up every morning with a clear mind, help my fellow professionals, not give a clue that i am losing it then why would i want to do anything else? it is perfect. erik: i'm glad you could join me for "encore" in my exclusive

interview with bill gross, a man determined to prove he's still got it. stay with bloomberg to get more insight from top investors and for news and market coverage anytime. i've erik schatzker, thanks for watching. -- i'm erik schatzker, thanks for watching. ♪

emily: verizon's plan to take on google and facebook, but is there room for others? that is ahead. welcome to "bloomberg west." i am emily chang. coming up, samsung unveils its new smartphones strategy, and what about a smart phone plan? i will ask the guy in charge and is an initiative a website killer? we will look at the eye-popping numbers that show the company's global reach, and will tencent take a page out of alibaba and unveil a strategy outside china? all of that ahead on "bloomberg west," but first, breaking news. we want to get to julie hyman