Bill Gross, Pimco’s co-founder and chief investment officer. Reuters
 
 
The global battle to reshape the $38 trillion bond market began before sunrise on Friday, Sept. 26, when an announcement blinked onto computer screens in the Newport Beach, Calif., offices of Pacific Investment Management Co.
 
Bill Gross, the firm’s co-founder and chief investment officer, arrived that morning around 5 a.m., earlier than usual, but he didn’t stay long or speak to anyone, according to people familiar with what happened. Just before 5:30 a.m., traders stared at their screens in disbelief.
 
“William H. Gross, world-renowned fixed income investor, will be joining” Janus Capital Group Inc.  to manage a small bond fund based in a new Janus office in Newport Beach, said a news release from the rival firm.
            
“Did you see that?” a stunned employee asked a colleague.
 
Mr. Gross, 70 years old, for decades has been the world’s most prominent bond investor, building Pimco into a $2 trillion giant through his commentaries, media appearances and often prescient calls on interest rates and global economic shifts.
 
As Pimco executives struggled to process the news, phone lines chirped with confused clients. Competitors formulated strategies to steal Pimco’s longtime investors. Tens of billions, if not hundreds of billions of dollars were at stake.
 
In the staid bond world, investors often stick with their chosen managers for years. With Pimco’s clients suddenly up for grabs, rival firms around the world are rushing to get a piece of the action—a frenzy that could affect some of the world’s top money managers for years to come.
 
        
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“Gross’s departure is a rare watershed event for the investment world,” said Jack Ablin, chief investment officer of BMO Private Bank, which manages $66 billion. “There’s a massive food fight as bond managers try to steal Pimco’s clients. It’s a shake-up of the entire bond market.”
 
Late on the Friday Mr. Gross’s departure was announced, Pimco executives outlined a new management structure and employees swung into action, making calls to clients into the night and over the weekend.
 
Stephanie King, a senior account executive, reached out to a large public pension fund that had more than $1 billion invested with Pimco. A person familiar with the conversation said Ms. King emphasized “the depth of our bench.”
 
After three calls from Ms. King, the pension executive said he was comfortable with the new Pimco team: “We’re sticking with you.” Ms. King didn’t respond to requests for comment.
 
It isn’t yet clear how many customers will remain as loyal. Pimco CEO Douglas Hodge has said the firm is “confident that the vast majority of our clients will continue to stand with us.”
 
On Wednesday, Pimco said a net $23.5 billion left Mr. Gross’s former flagship fund, the Total Return fund, in September, the majority pulled on the day Mr. Gross announced his departure. Research firm Morningstar Inc. said the withdrawals were of “unprecedented magnitude.” Many of Pimco’s biggest clients, including pension funds and other institutions, said they are still seeking advice and weighing a growing volume of sales pitches from competitors.
 
On Wednesday, a top executive at rival BlackRock Inc., wrote in a note to clients: “Let’s say that you are having doubts about your core bond holding and want to pull some money out....” The note never mentioned Pimco, but BlackRock has received billions of dollars of new investments in the last week, according to a person close to the firm.
 
Pimco CEO Douglas Hodge, left, with Group CIO Dan Ivascyn on CNBC, has worked to retain investors after Mr. Gross left to join Janus Capital. CNBC 
 
 
The battle has echoes beyond Wall Street. About 14 cents of every dollar invested in taxable bonds is in Pimco funds, according to fund-research firm Morningstar Inc. And 28,000 401(k) plans have $88 billion invested in the Total Return fund, according to BrightScope, a La Jolla, Calif.-based firm that analyzes retirement plans. Wal-Mart Stores Inc. and Oracle Corp. are among the businesses whose retirement plans have the largest investments, according to the most recent data, BrightScope said.
 
Mr. Gross and his new firm will be formidable competitors. After Warren Buffett, Mr. Gross may be the world’s most recognized investor and could attract many Pimco clients.
 
A spokesman for Janus declined to comment and said that Mr. Gross was unavailable. Mr. Gross didn’t return calls to his home and cellphone.
 
For Mr. Gross, there may be more than money at stake. Before his departure, in a meeting outside Pimco in which he discussed his intention to leave, he was asked how much revenge was a factor, according to two people with knowledge of the meeting. Mr. Gross said it was “a big part of it,” these people said.
 
 
Mr. Gross’s 40-year-plus career at Pimco didn’t figure to end so abruptly. The first public signs of turmoil came in January when Mohamed El-Erian, chief executive and Mr. Gross’s heir apparent, quit amid tensions with the star investor. The Total Return fund suffered from spotty performance, clients withdrew money over 16 consecutive months, and some people within the firm viewed Mr. Gross’s behavior as erratic and divisive, The Wall Street Journal has reported.
 
By late summer, several of Mr. Gross’s top deputies on the investment committee had threatened to quit if Mr. Gross didn’t leave first, according to people familiar with the events.
 
Mr. Gross and his wife, Sue, left for an Italy-to-England cruise from Aug. 24 to Sept. 5, according to someone on the same cruise. Mr. Gross could be seen practicing yoga in the ship’s fitness center, this person said.
 
By then, Mr. Gross had asked executives at Pimco for a diminished role at the firm—he would step off the executive committee and run a so-called unconstrained bond fund, according to people familiar with the matter. But those discussions fell apart after Mr. Gross returned from vacation, these people said.
 
In mid-September, Michael Diekmann, chief executive of Pimco’s parent company, German insurance giant Allianz SE, came to Newport Beach to see if he could play a role as conciliator. He lent support for a transition away from Mr. Gross’s leadership but he wanted to avoid a confrontation at the firm.
 
Mr. Gross subsequently called a rival, Jeffrey Gundlach, founder of fast-growing Los Angeles-based bond manager DoubleLine Capital LP., hoping to land a new job. But Mr. Gundlach and his receptionist didn’t believe Mr. Gross was on the phone, according to three people familiar with the call.
 
“Take the number,” Mr. Gundlach said. When he saw the area code was in Laguna Beach, Mr. Gross’s home, he promptly called back, and the two men met.
 
Mr. Gross subsequently decided to join Janus instead. The CEO of Janus, Richard Weil, had previously worked under Mr. Gross at Pimco.
 
Futures on 30-year Treasurys fell a half point on the news, amid worries that clients would flee Pimco and the firm would have to dump bonds to raise cash. Hedge funds and other traders pored through Pimco’s positions, sending other holdings and closed-end funds tumbling. Janus shares soared and Allianz shares fell.
 
One trader said when he saw the news he thought his computer had been hacked.
 
In Germany, Allianz staff in the insurer’s Munich office only heard of the news when headlines began flashing across Twitter  and news wires at 2:28 p.m. local time, according to two person familiar with the events.
 
Allianz’s asset management chief, Jay Ralph, and others tried to reach Pimco officials to confirm the news, according to people briefed on the efforts. It took them about 25 minutes.
 
Mr. Gross, who hates to fly, flew to Janus’s Denver headquarters to meet with senior executives that afternoon. He told executives he was excited to get back to portfolio management, according to a person at the meeting.
 
In Newport Beach, surprised Pimco executives hustled into meetings to develop a response. But they weren’t sure what to say because Mr. Gross hadn’t formally resigned, according to company executives. They eventually deployed dozens of executives to reach out to clients across the globe.
 
One of those clients was Jim Baird, chief investment officer of Plante Moran Advisors of Southfield, Mich. At stake: $1.1 billion Mr. Baird and his clients held in the Total Return fund. A Pimco representative called Mr. Baird that Friday to walk him through the new management structure and highlight the work of Pimco’s new chief investment officers, such as Mark Kiesel, one of the Total Return fund’s three portfolio managers.
 
But after an internal meeting, Mr. Baird and the firm’s president, John Lesser, decided to pull their entire investment.
 
“There’s a lot of turmoil at the organization right now,” Mr. Lesser said, adding that he worries Pimco’s executives will be spending much of their time trying to save accounts, and less on strategy.
 
Pimco’s competitors were circling. By early this week, several asset-management firms were trying to schedule meetings with the same large institutional clients slated to visit Pimco during the week, said one of the firms involved in the outreach. A large pension-fund consultant circulated a list to other asset managers of about 15 Pimco institutional clients who were shopping around for other managers.
 
Consultants, who often play significant roles in steering money from pensions and endowments, lobbed calls to rival asset managers, questioning whether they could absorb large volumes of incoming cash, according to the companies. One consultant asked rival TCW Group Inc. if it could handle upward of $50 billion in new inflows, according to one person familiar with the matter. TCW’s current assets under management are about $141 billion. A TCW spokesman declined to comment.
 
By midweek, money was moving. On Wednesday, representatives of the Austin Fire Fighters Relief and Retirement Fund gathered in a conference room of the second floor of their building in the Texas capital. Within five minutes, board members had decided to move $80 million invested with Pimco—roughly 10% of the Austin fund’s total assets—to a bond index fund managed by State Street Corp. , said William Stefka, the fund’s administrator.
 
The Austin fund’s officials weren’t swayed by Pimco’s multiple attempts to reassure them that it would move past the current turmoil, Mr. Stefka said, adding that he had been a fan of Mr. Gross’s newsletter.
BlackRock, the world’s largest money manager with more than $4.5 trillion in assets, was among the firms angling most aggressively for Pimco’s business.
 
On Monday morning, the first business day after Mr. Gross’s departure, BlackRock hosted a conference call for 2,000 financial advisers and others to offer advice about how investors should move their money in the wake of the news.
 
Matthew Tucker, a BlackRock managing director, referred to his firm’s bond exchange-traded funds as a “transition play” and spoke about the “stability” of the BlackRock franchise.
 
“In recent days, conversations with clients, particularly around our Total Return and Strategic Income Opportunities funds have increased greatly,” a BlackRock spokesman said.
 
It isn’t clear how active Mr. Gross will be in the fight for investors’ cash. He is working alone from an office newly opened by Janus, with only support staff surrounding him, according to people at the company. He has requested just one trader to work with him.
 
Mr. Gross, who made more than $200 million a year at Pimco, organized his deal with Janus so quickly that he hadn’t negotiated salary when he came on board, said one person familiar with the matter. At Janus, he will be paid equal to a portfolio manager, a fraction of what he made at Pimco, this person said. While the pay range of fixed-income portfolio managers is wide, the high end is far less than Mr. Gross made previously, according to people involved in the industry.
 
Mr. Gross will begin trading in his fund on Monday and will host his first investment call on Thursday.
 
Mr. Gross appeared upbeat and energized, according to one person who met with him recently, noting that the huge size of his former Pimco fund made it more challenging to outperform the market. But he also seemed to take some responsibility for the dramatic departure from Pimco.
 
“Some of the guys…I kind of alienated them,” Mr. Gross told this person last month. “They don’t want me anymore.”
 
 
—Dan Fitzpatrick, Gillian Tan, Ulrike Dauer and Michael Wursthorn contributed to this article.