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 i somehow might have lost my touch. it is really hard to sink in terms of how much it is and what effect it could have. "would you like to manage a half $1 billion 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 could 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, was forced out. last september, he joined janus capital and now manages the $2 billion global janus 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 this is to prove that i have still got it. maybe like a 38-year-old quarterback that can take his team to the super bowl. erik: to whom do you prove

anything? bill: that is my particular problem. thaterstand intellectually not many people care. my wife does, because she has to put up with me at night. it is an obsessive thing that has given me and formed me and helped form pimco. when you get to be 71, erik, 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 bill gross, the most successful bond manager ever, would be doing this? bill: i did not like how i left, so to say, 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: i think more five performance then by assets, so i would love the assets to grow. when i came to janus, it wasn't with the intent of creating pimco two. i recognize pimco one took 20 or 30 years and that was not a realistic goal. it did not mean that i did not want to double assets every year, like i did at pimco. i had aid mean reasonable sense of organization and the future. so success, for me, would be defined by 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 really no idea on

that. have about $2 billion right now, some of that 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 for me?" and i said yes, sir. erik: is there a point to which it comes too big? bill: i think so in terms of active management. this is not to diss pimco. we know they have close to $2 trillion. and that's big. other institutions are big, too. i would only say that it is , 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 and a consensual outlook in terms of what you want to do. but 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 and a tailored argument, but it is ethnically 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. the benefit of being small, of managing, for the time being, single-digit billions as opposed to triple-digit billions. bill: whenever we did something at pimco, to compare, because that is what i know, whenever we did something either the press , would observe it at the end of the month or the quarter or even 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, actually. bill: certainly. in the 1970's, when the state of california was the big cheese, certainly in california but probably 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. it is that word spreads quickly. it gives the market the opportunity to work against you or to anticipate going forward. erik: coming up on this edition of "encore," 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 all bill gross used to ask of himself. now that he is 71, the one time bond king thinks of success in different terms. bill: i define success differently now than five or 10 years ago. you know, success in the early years was business related and asset growth related, and of coarse, with family it was

, related to how well your son or daughter was doing on the soccer field, etc., etc. these days, children have grown. they are doing their own thing. certainly, they are still very much connected with their own successes. but my wife and i have raised our family, and now success becomes a function of what we can do with 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: well, 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 the duke university in terms of

stem cell and alzheimer's, in terms of what they are doing. we are frequent developers, i guess, of 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 they are in. and lots of other activities. so success these days is still performance, as i have 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 7:00 at night watching "jeopardy," instead of having cocktails with people we don't know. it is quite because we are quiet people. we eat at a mexican restaurant down around the corner -- $15 total, 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: yes.

it's the gross family foundation, of which our kids are a part. three kids. jeff, jen, and mick. that is the second largest philanthropic organization in orange county. erik: goodness me. do you share the same goal that other people share or have, which is, by the time it is all said and done with, i will have given it all away? bill: certainly in terms of the foundation. i mentioned it is a family foundation. so i have three kids between 26 and 42 years old. and so they will continue the effort. but, 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: yeah. and 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 that i am looking into now called 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. bill: most africans have cell phones, which is hard to believe so mobile money. , if you can do that and contribute $25 or $50 to someone in uganda that, of course, 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 have 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. sue helps me keep grounded. she counts every little penny. erik: that's a lot of counting. bill: [laughs] that is what i have tried to tell her. in terms of the philanthropy, i keep telling her, we have to get a move on here. i am 71, and she is a little bit less. five 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 unconstrained fund and its

philosophy. the unconstrained fund recently has all of its money and yields 2%. and then 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. and so if you can overlay derivatives in a 2% or 3% leveraged way, that can produce a 5% to 6% return, which the unconstrained fund 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 a word

four or five years ago that was meant to a solution to the fact that bonds were about to have a bear market. investors wanted to say, hey, 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 so much, but let's talk about credit 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 the 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. and on the other side, it's only leveraged to 2 or 3 times.

how does that all come together? well, hopefully, it comes together with a price volatility that is close to a low duration bond fund, but not necessarily. erik: so we are never going to see bill gross buying stocks? bill: oh! well, the unconstrained fund has some stocks in it. there is some producing an arbitrage situation that yield -- and do not 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% yield with very little risk. but we are talking 5% to 7% of the portfolio. erik: what is the max that he would ever become? bill: 10%. i'm not turning this into an arbitrage type of fund.

only pretty much slamdunk deals and keep it 10%. erik: i am curious to know, now that i have learned this, about stocks and the 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 just seemed like a natural situation in which i should put some of the money in the janus unconstrained. managet -- you know, i as well our family foundation, which is sizable. a lot of it is in a closed-in fund territory, not necessarily liquid. but in an environment in which interest rates are low. and 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. but those are some of the vehicles on a weekend i will take -- and 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. basketball, whatever. it sounds boring, but i really love it. erik: is bill gross in private equity? bill: no. erik: public equity? bill: mildly, in the old standards. johnson's.ors and erik: and 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.

and i'm not suggesting that that was the low of lois. -- lows. having had the career i've had, my wife, daily, told me to get over it. so hopefully i have done most of that. i am happy to be with sue and to have a family that is healthy. but every time we walk on the weekend, we say, you know, none of the kids have ever had broken bones or an accident or -- 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: well, i would, personally

i would start with my health. , i am healthy. so that is high-quality for a 71-year-old. many aren't. you know 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 that i try to 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 still proving to yourself that, in your words, you have still still keep doing 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 a concussion you got five years ago comes back to haunt you. so, you know, 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 "poor gore 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'm erik schatzker. thanks for watching. ♪

♪ emily: he is tech's biggest outlaw, under house arrest after a massive raid by new zealand commandos. kim dotcom is known for his outrageous personality as he has trotted the globe from germany, to hong kong, to new zealand. now he is the target of the biggest copyright case in history, accused of trafficking in pirated music, movies, and tv shows, as he awaits an extradition hearing to decide his fate. joining me today on this special edition of "studio 1.0" from auckland, new zealand, megaupload founder and self-proclaimed ruler of the