Dear friends,

The laconic Prince Otto Eduard Leopold von Bismark, Duke of Lauenburg (the Iron Chancellor) is often associated with the statement “If you like laws and sausages, you should never watch either being made.” However the earliest known quote regarding laws and sausages is attributed to John Godfrey Saxe, “University Chronicle: University of Michigan March 27, 1869”. Clearly Saxe entrusted his finances to a fiduciary manager like Monarch or he would have said “laws, sausages and investment decisions…”

Occasionally we are faced with an investment decision that’s broad in scope, topical and may offer clients some additional insight to our firm’s investment decision process. We were faced with just such an occasion this past Friday. If you don’t mind a little sausage making read on.

The “Bond King” Bill Gross shocked the markets this past Friday by announcing he was leaving PIMCO, a firm he founded in 1971, to join Janus Capital. This follows another high-profile exit, former CEO and co-CIO (Chief Investment officer) with Bill Gross, Mohamed El-Erian left PIMCO back in January. Last Tuesday the Wall Street Journal reported the SEC has been questioning whether PIMCO had been improperly valuing bonds in one of its funds to boost performance.

Who and/or what is PIMCO? PIMCO is the Pacific Investment Management Company, one of the largest money managers in the world. PIMCO is said to have managed $1.97 Trillion (that is a T) dollars as of June 30, 2014. To give some perspective on just how much money Bill Gross personally managed, his flagship fund the PIMCO Total Return Fund has recently reported assets of $220-ish billion dollars.

The firm Mr. Gross is joining, Janus Capital, is a large well known company which currently oversees $178 billion. That’s right, one of Bill’s funds is larger than his new employer’s entire company. Why would Mr. Gross leave PIMCO for Janus? Well, as you might expect rumors abound. Ultimately it doesn’t matter to us. What does matter is our confidence in the fund managers and the executive management team of the fund families we choose to utilize for our clients. We have lost confidence in PIMCO, Bill Gross and frankly Janus Capital.

Friday afternoon Monarch Asset Management sold all PIMCO positions (not just the funds that Mr. Gross managed personally). This affected nearly every client at our firm. Our decision has nothing to do with expected investment returns and everything to do with acting as a prudent steward of our client’s funds. We attempt to act as our clients would if they had the same access to information, time and a desire to manage their own investments. We have no doubt PIMCO will survive and investors who remain in their funds may do just fine. We’d just rather read about how PIMCO handles things over the next year than live through it on our statements, and figured you’d agree.

Now, care for hash browns?