Gross Doesn't Let SEC Guidelines Stand in Way of Big Bond Bets

Bill Gross turned to derivatives to make a big bet on emerging-market debt after taking the helm of a Janus Capital Group Inc. fund more than a year ago. One thing he didn’t let stop him: regulatory guidelines that lay out how much fund managers should use them.

Gross wagered in his Janus Global Unconstrained Bond Fund that sovereign debt from countries including Mexico and Brazil, as well as corporate bonds, would outperform. He structured his positions by entering into swaps contracts in which he agreed to insure against default almost $1.7 billion of bonds as of the end of June, the most recent data available show. While most funds limit their exposure to just a small percent of assets, Gross’s use exceeded the market value of his fund’s holdings, which were $1.46 billion at the time.