erik: bill gross is out to prove he's still got it, that he still has got the touch that made him one of the greatest investors of all time. in an exclusive interview, the one-time bond king tells me how he defines success, how he invests his own money, and how he is giving away his multibillion dollar fortune on this special edition of bloomberg's "encore." bill: i did not care for the aspersions that somehow i might have lost my touch. it is really hard to sink in as far as how much it is and what effect it could have. "would you like to manage a half a billion dollars for me?" and i said, "yes, sir." erik: welcome to "encore." i'm erik schatzker. bill gross earned his reputation

as the most feared man in the bond market. no one managed more money. no one can match his performance. gross built pimco into a $2 trillion powerhouse and personally ran almost $300 billion. his rise seemed unstoppable. his fall was sensational. gross lost a power struggle, and after four decades at pimco, he was forced out. last september, he joined janus capital and now manages the $2 billion unconstrained bond fund. gross and i sat down at his offices to talk about his new life. we started with the obvious. why at 71 is he still doing this? bill: one of the reasons that i am still doing it is to prove that i have still got it. maybe like a 38-year-old quarterback that still has an arm and can take a stand at the super bowl. erik: why do you need to prove anything?

bill: i understand intellectually how many people -- not many people care whether i prove it or not prove it. my wife does, because she has to put up with me at night. it is an obsessive thing that has driven me and drove pimco. when you get to be 71 even though you can figure it out intellectually, you don't necessarily lose it. erik: surely you must get there are people that must wonder why you are the most successful bond manager ever be doing this? bill: i didn't like how i left pimco, and i didn't care how the aspersions that somehow i might have lost my touch. i don't think i have lost my touch. i am in this seven days a week and 18 hours a day, believe it or not. that speaks to interest, and

hopefully, the performance numbers speak to confidence. erik: how are you going to define success for yourself at janus? bill: more by performance than by assets, although i would love the assets to grow. when i came to janus, it wasn't with the intent of creating pimco 2. i recognize pimco 1 took 20 or 30 years, and that was not a realistic goal. it didn't mean that i didn't want to double assets every year, like i did at pimco. i had a reasonable sense of organization and the future. success, for me, would be defined for performance for existing clients. it has always been that way. erik: if it's not going to be as big as another pimco, how big would you like to get to be? bill: i have no idea on that. we have about $2 billion right

now, thanks to george soros, who unbelievably called me two days after i left pimco and said "bill, would you like to manage a half a billion dollars for me?" and i said "yes, sir." erik: is there a point to which it comes too big? bill: i think so, with active management. this is not to diss pimco. they have close to $2 trillion. and that's big. other institutions are big, too. it is easier with $2 billion to move money. the liquidity is obviously better. it is less onerous in terms of organization and decision-making, where you have to build a consensus, consensual outlook in terms of what you want to do.

that doesn't mean being here by yourself, so to speak, relative to pimco is the best of all worlds. it is obviously good to get feedback, but it is a situation here at janus where i can do things that i think will make money a lot quicker than in a larger frame. erik: tell me more about that. the opportunities, if you will, benefits of being small, of managing, for the time being, the single-digit billions as opposed to triple-digit billions. bill: one of the problems at pimco, to compare -- because that's all i know -- whenever we did something, either the press would observe it at the end of the month or the quarter or in between. certainly, the market would know. you can't do billions and billions of dollars of trades without word spreading fast.

erik: kind of like wildfire. bill: in the 1970's when the state of california was the big cheese, certainly in california but in the country, everyone was always asking, what is the state doing? what is the state doing? it moved pretty quickly. that is one of the disadvantages of being big -- that word spreads quickly. it gives the market, the opportunity to work against you, to anticipate going forward. erik: coming up, billionaire bill gross tells me there is only one thing better than outperforming the markets. plus, find out how much of his wealth he has given away. bill: which is staggering, even to me. ♪

erik: welcome back to "encore." investors ask only one thing from a fund manager. performance. and that's what bill gross asked of himself. now at 71, the one-time bond king thinks of success in different terms. bill: i define success differently now than five or 10 years ago. success in the early years was business related and asset growth related, of course, with family it was related to how well your son or daughter was doing on the soccer field, etc.

you know -- these days, children have grown. they are doing other things. certainly, they are still very much connected with their own successes. my wife, sue, and i have raised our family, and now success becomes a function of what we can do for the rest of the world outside, you know, irvine, to help others and to prove that some of the prior success can blend into success for the future for others. erik: like what, for example? bill: we are very active in stem cell research. we have connected six or seven years ago with the university of california at irvine, with their stem cell research center. we have recently connected with duke university in terms of stem

cell and alzheimer's, in terms of what they are doing. we are frequent developers, i guess, of the hospital and hospital foundations. we have funded an emergency center in laguna beach. one of these days i probably will be a patient. those types of things. we are very concerned, too, with the situation in africa, and helping out the situation there. and lots of other activities. so, success these days is still performance, as indicated, i am still obsessed with it. but it is also extending the benefits to other parts of the world. erik: why don't you talk more, or haven't you talked more about your philanthropy? bill: sue and i try to keep it quiet.

we're not -- not that there's anything wrong with this, but we are not the type to attend functions and parties and galas. we like to work underneath, so to speak. erik: quietly. bill: yeah, if only, to be honest, because we like to be in bed at night at 7:00 at night watching jeopardy instead of having cocktails with people we don't know. we are quiet people. we eat at a mexican restaurant just down the corner -- $15 absent the margaritas -- that's just the life that we pursue. erik: i'm going to ask you a crass question, so forgive me, but how much money have you given away? bill: well i think at this point, probably $600 million or $700 million. erik: really? bill: it's the gross family foundation of which our kids are a part.

that is the second largest philanthropic organization in orange county. erik: goodness me. do you share the same goal that some other people share -- or have, by the time it is said and done with having given it all away? bill: certainly in terms of the foundation. i mentioned it is a family foundation. i have three kids between 26 and 42 years old. and so they will continue the effort. and so, yeah, we will give everything that we have, other than our home, away to either philanthropic causes or to the foundation. erik: that will amount to billions of dollars. bill: yes. yes. which is staggering. even to me. erik: really? bill: yes. i try to explain to sue, and she

sees everything, and we talk about stocks and trading and so on. but, you know, it is really hard to sink in 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 givedirectly, 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. bill: most africans have cell phones, so mobile money. if you can do that and contribute $25 or $50 to someone in uganda, that you haven't met, that's almost as good as outperforming the market from my standpoint. erik: almost. [laughter] tell me, bill, how is it that you have been able over the

course of amassing something of a personal fortune, as we just established, to remain modest, if you will? how are you different? bill: i give most of the credit to sue, and we have been married for 31 years. she helps me keep grounded. she counts every little penny. erik: that's a lot of counting. bill: [laughs] i know. that's what i tell her. in terms of the philanthropy, i keep telling her, "we've got to get a move on here." am 71, and she is a little bit less. five years or six years less. but, yeah, it is a lot of counting and a lot of giving that has to take place before at some point you are not quite sure what you are giving. erik: when we return on "encore," bill gross on how he is investing for janus and investing for himself. ♪

erik: do you feel less of the need to trade in derivatives now than you did previously, because of the fact that you are smaller? bill: actually more of a need because of how i constructed the

fund and its philosophy. the unconstrained fund consolidates money, it yields 2%. on top of that, you overlay your derivatives. i see it in terms of a pie. the cash goes into the crust, the crust yields 2%, hopefully it tastes good, but the filling, whether it is apple or berry or whatever, is the derivatives space, so if you can overlay derivatives in a 2% or 3% levered way and produce a 5% to 6% return, then it is on target for the first 12 months. no results guaranteed. erik: "unconstrained" has been a dirty word in some quarters. what does unconstrained mean to you? bill: "unconstrained" was the word four or five years ago that

was meant to a solution to the fact that bonds were about to have a bear market. bonds have not had a bear market. bonds-investors wanted to say, if i am going to buy something and it is going down in price, i need a different alternative to duration space. and so, that's where "unconstrained" came from. it says basically let's not emphasize duration, but let's talk about volatility and liquidity and illiquidity and see in terms of the filling relative to the pie, if you can add 300 or 400 basis points with relatively little risk without losing any money. erik: how far are you prepared to go with freedom that it offers you? how far up the risk curve is comfortable for you? bill: there is not a lot of junk in the unconstrained fund. very little. there is not a lot of duration. on the other side, it's only leveraged to 2 or 3 times.

how does it come together? well, hopefully, it comes together with the price volatility that is close to a low duration bond fund, but not necessarily. erik: we will never see bill gross buying stocks? bill: oh! you know, the unconstrained fund has some stocks in it. it is an arbitrage situation, don't jump out of your seat here, that yield 2% to 3% on an annual basis. they form part of the crust that i am talking about. 2% to 3% with relatively little risk, but we are talking 5% to 7% of the portfolio. erik: what is the max that it will become? bill: 10%. i'm not turning this into an arbitrage type fund. we like to slamdunk deals and keep it 10%.

erik: i am curious to know, now that i have learned this, about stocks and unconstrained fund, how do you manage your personal money? clearly, some of it -- i would imagine some of it is in the unconstrained fund. bill: yes. it is only natural to put some of the money in the janus unconstrained. the rest i manage, our family foundation, which is sizable. a lot of it is in a closed-in fund territory, not necessarily liquid, but in an environment which interest rates are low, those closed-in funds can lever to a certain extent. you can get a 6% to 7% tax-free, for instance, in a wide variety of closed-in municipal funds. not without risk. those are some of the vehicles

on a weekend i will take out my baron's -- hopefully that's not a nasty word here. i will take out my baron's and i will check them all out. then i will watch bloomberg or hockey playoffs. it sounds rather boring, but i love it. erik: is bill gross in private equity? bill: no. erik: public equity? bill: mildly in the old standards, procter's and johnson's -- erik: blue chips. bill: yeah. erik: before we finish, there is something i would like to know. you seem happy. are you happy? bill: yeah. i am getting happier. you know, four or five months ago was a low point. everybody has low points. i am not suggesting that was the low of lows.

having had the career i've had, you know, my wife daily told me to get over it. and -- so hopefully i am done with most of it. i am happy to be with sue, and to have a family that is healthy. every time we walk on the weekend, we say, you know, none of my kids have ever had broken bones or an accident, we have been really lucky. and so, yes, it gets to a point where if you're not happy with that type of situation, you might as well, you know, pack it in. erik: how would you describe your quality of life right now? bill: personally, i would start with my health. i am healthy.

so that is high-quality for a 71-year-old. many aren't. the quality of life from the standpoint of obviously the financial situation has been taken care of -- and long ago. you know, there was a saying i always try to remember, it goes that happiness is a function of finding something to do, someone to love, and something to hope for. i got something to do, i certainly have someone to love, and i have 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're still performing, so long as you're proving to yourself that, in your words, you have still got

it, you still do this ad infinitum, until whenever? bill: as long as i can stay healthy. i will say that i do know by common sense that the tension that comes with this job is not health-creating. it's sort of like being a pro football player -- at some point maybe the concussion that you got five years ago -- erik: comes back to haunt you. yeah. bill: comes back to haunt you. so as long as i can get up every morning with a clear mind and come into the office, and have my fellow professionals not give me a clue that i am losing it, then yeah, why would i want to do anything else? it's perfect. erik: i'm glad you could join me for "encore" and my exclusive interview with bill gross, a man determined to prove he has still got it.

keep watching bloomberg television from more insights from the world's top investors, and visit bloomberg.com and our mobile platforms for news and market coverage anytime, anywhere. i am erik schatzker. thanks for watching. ♪ . .

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