Bill Gross, the co-founder of Pacific Investment Management Co. announced Friday that he was stepping down to join rival Janus. This comes after numerous clashes with board members and reports that the firm will be investigated by the Securities and Exchange Commission for the allegedly inflating bond prices. (Reuters)

Bill Gross, founder of Pacific Investment Management Co. and the manager of the largest bond mutual fund in the world, is stepping down.

Starting next week, Gross, who managed the $222 billion Pimco Total Return Bond fund, will run a new unconstrained bond fund at Janus Capital Group, which announced the move Friday. “After having spent considerable time serving in senior management, it is a time for me to reduce executive and people management responsibilities at a larger firm and focus on the pure aspects of portfolio management at a smaller one,” Gross said in a statement announcing the change.

The reasons for Gross’s departure are still unclear. Gross, who founded Pimco in 1971 and oversaw the firm as it grew to have more than $2 trillion in assets, has seen his reputation bruised in the past several months following the high profile departure of his second-in-command and former chief executive Mohamed El-Erian. Investors have also been fleeing his flagship bond fund after performance wavered, pulling $68.8 billion from the fund during 16 straight months of outflows that began last May, according to fund research firm Morningstar.

Earlier this week, the Wall Street Journal reported that the firm was being investigated by the Securities and Exchange Commission for potentially inflating bond prices in the $3.6 billion Pimco Total Return ETF. And on Friday, reports emerged that other top leaders at Pimco were getting ready to fire Gross.

While the news was not a complete surprise for investors who had been watching the firm, the suddenness of the move– Gross is starting his new job on Monday– may still have implications for regular investors.

There’s a good chance you have exposure to Pimco. With more than $100 billion in defined contribution retirement plans, the Pimco Total Return Bond fund is the largest fund in the 401(k) marketplace, says Ryan Alfred, president  and chief operating officer of BrightScope, a company that tracks retirement plans. More than half of the 55,000 retirement plans offered the bond fund as of 2012, which is on the high end for a mutual fund, Alfred said. That means there’s a good chance investors could see some short-term volatility in their retirement accounts in the wake of the news.

But the key phrase there is short-term. While the departure of Gross and his No. 2 in the same year doesn’t bode well for the stability of the firm,  analysts say the leadership changes shouldn’t lead to an overnight change in the management and performance of Pimco’s funds. Gross was the top manager of the Pimco Total Return Bond fund, but he worked with a large team of analysts and managers who are likely staying on board after he leaves, says Russel Kinnel, director of manager research for Morningstar. “This is obviously a sign that there are some serious issues at Pimco,” Kinnel says, “It’s not the end of the world.” Even if the new manager assigned to the fund takes a very different approach, it will likely be implemented gradually, Kinnel says.

His departure is enough to move markets– at least temporarily. Gross’s outlook on the bond market and the economy, expressed in colorful newsletters to investors, was often enough to move the bond market. The day he announced his move was not any different. Yields on 10-year Treasury notes  jumped temporarily to  2.55 percent from 2.50 percent immediately after his statement, sending bond prices down. (That may not seem like a lot, but it’s a big move in the bond market.) Some investors also sold off their Pimco stock funds, causing prices to slump. Market performance is likely to stabilize as investors adjust to the new leadership at Pimco and refocus their attention on other factors like the strength of the economy, Kinnel says.

It will be important to watch what happens next at Pimco, he adds. If a slew of other staff members  leave the firm, that could rock the performance of Pimco’s funds. But if management stabilizes, investors may stay put. Still, Morningstar said shortly after the announcement that it had placed all of Pimco’s funds “under review,” a designation that means it would re-evaluate the funds’ ratings. The research firm downgraded the bond company to a C following the departure earlier this year of El-Erian. While it is too soon for investors to know for sure if they should dump  their Pimco funds, it might be a good time to reassess their bond porfolios, Kinnel says. “But you have time to do it,” he says. “You don’t need to get out this second.”

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