On Sept. 26, 2014, Pacific Investment Management Co. founder Bill Gross left the company he’d founded 43 years earlier. Gross quit to go work for Janus Capital Group, Inc. (JNS ), an investment firm with $170 billion in assets under management. If that sounds impressive, PIMCO is 11 times larger. Why would Gross, no mere hotshot employee but rather the man who built Pimco from scratch into the largest investment company of its kind, leave to join a relative also-ran? At the age of 70, no less?

El-Erian Leaves, Outflows Continue

We’ll leave the speculation to other, less reputable sites, but Pimco has objectively been in decline for months. In January 2014, Chief Executive Officer Mohamed El-Erian resigned, technically moving upstairs to serve as chief economic adviser for Pimco parent Allianz SE (AZSEY ). Gross, who had groomed El-Arian like no previous protégé, wasn’t pleased. Within hours of Gross’s resignation, El-Erian had finally managed to craft an excuse palatable enough for public consumption; his 10-year-old daughter was upset that he’d missed some dance recitals and a parent-teacher conference. Regardless, Pimco wasn’t beating the index. That didn’t stop Gross from describing the firm as a “happy kingdom” while investors were cashing out of its funds, however. (For more, see: What Bill Gross, Steve Jobs and Steve Wynn Have in Common .)

Creating a Monster

Ah, those funds. Pimco built the largest bond fund in the world, the Total Return Fund (PTTRX ), which holds $220 billion in assets. But bulk, at least at that level, isn’t necessarily a positive for a bond fund. As the Total Return Fund grew, it could no longer take a large position (relative to its total assets) in the bonds of any promising small-cap companies. That’s what the Total Return Fund did in its nascence, which helped the fund grow and separate itself from similar bond funds. In recent years the Total Return Fund has stagnated. It fell from a total value of $293 billion in 2003, yet Gross remained insouciant while privately looking to leave. (For more, see: Pimco Customer? Consider This Before Bailing .)

Can anyone truly beat the market for 43 years? Or did Gross and Pimco just fall victim to the “time and chance that happen to them all?”

As for Janus, its stock price rose 43% the day the firm announced its new hire. Gross will manage the Janus Global Unconstrained Bond Fund, which was launched only four months earlier. Its total assets? $12.7 million. Gross’s previous fund is more than 17,000 times larger. His new project is small and nimble enough to get in and out of promising components. And the fund could stand a little diversity. When Gross took it over, 44% of its assets were in a single-bond issue. That’d be 0.5% T-notes/bonds maturing June 30, 2016. (For more, see; The Greatest Investors: Bill Gross .)

Not the First to Up and Leave

Gross is the biggest bond fund manager in history to change employers, but hardly the first. TCW, another Southern California-based investment management firm (coincidentally, also founded in 1971) fired manager Jeffrey Gundlach in 2009. In some respects Gundlach did a reverse Gross, quitting a remunerative job to start his own firm. (Thus the firing. TCW alleged that Gundlach stole client information while planning his exit.) That new firm, DoubleLine Capital, quadrupled in size in its first year and continued to grow as Gundlach eschewed cheap treasuries in favor of mortgage-backed securities. His Total Return Bond Fund performed in the top percentile in 2011. (For more, see: Alternatives to Pimco’s Total Return Fund .)

As for TCW, when Gundlach left he took 45 other managers with him. And countersued. And won. Now a branch of the Carlyle Group LP (CG ), TCW has $142 billion in assets under management, relatively little of it in mortgage-backed securities. That’s a 27% increase since Gundlach’s departure, impressive given that he managed most of TCW’s war chest.

In an uncanny parallel, DoubleLine took in more than a billion and a half in investor funds as Gross was departing Pimco. The money had to flow somewhere, so why not to the next most-respected bond fund manager around?

Putnam Investments

Putnam is a Boston-based firm that’s been selling mutual funds and similar vehicles since before World War II. In the late 20th century, Putnam had over $400 billion under management. Today it’s about the same size as TCW. How did Putnam lose money so quickly? Investors withdrew en masse when regulators determined that fraud was endemic behind Putnam’s doors. Senior employees were improperly trading their own shares, and doing the same on behalf of wealthy clients. The CEO quit, and the Securities & Exchange Commission levied hundreds of millions in fines. The new CEO attempted to streamline operations, firing department heads and forcing the remainder to actually earn their bonuses. Still, allegations of market-timed trades and other improper trading (originating during the previous CEO’s regime) continued. Yet through it all, the company remained profitable. Its core business of 401(k)s and other retirement schemes was so successful that the company continued to flourish in spite of the relatively minor rulebreaking. Ultimately, in 2008 Putnam was bought by Great-West Lifeco, Inc. (GWO ), which appointed yet another CEO. This one continued the streamlining process, and merged some of the firm’s underperforming funds as well. (For more, see: How to Tell if a Company is in Trouble .)

It worked. Putnam flat-out closed one fund, but saved the hand in the process. The company now maintains a roster of 80 mutual funds, and turned a modest profit in 2013.

Putnam’s story, even if it had ended in the firm’s collapse, still wouldn’t compare to the disaster that was the final chapter of Bear Stearns. At one point one of the seven-largest securities firms in the world, Bear Stearns boasted close to a quarter-trillion in assets when cracks started to appear in 2004. The SEC began looking into how Bear Stearns underwrote the Illinois state pension plan, which would normally be reason for management to worry. That is, unless the firm were to start carrying tens of billions of subprime mortgages on its books. By 2007 the firm claimed close to $400 billion in “assets,” which is in quotes because when liquidated, those balance sheet items weren’t worth nearly as much. Nor, as it turned out, the proverbial paper they were printed on. The global financial crisis left multiple firms in its wake, but none fell quite as far as Bear Stearns. The firm ended up “borrowing” (quotes necessary there, too) $25 billion from the New York Fed the following March, only to be sold to JPMorgan Chase & Co. (JPM ) for pennies on the dollar six weeks later. (For more, see: Bear Stearns’ $2 Catastrophe .)

The Bottom Line

If history is any indication – and if history isn’t, nothing is – trifling securities violations won’t drive an investment management firm out of business. Nor will losing a superstar, no matter how big he is nor how many people follow him out the door. But if your firm overleverages without restraint, and exposes itself to gigantic downside, the results will almost always be catastrophic. (For more, see: What to Expect from Pimco After Bill Gross .)