Bond investment superstar Bill Gross’s recent essay claiming hedge funds provide little value for the fees they charge could have just as easily been written about his own firm.

Titled “Lemonade For Sale,” Mr. Gross’s essay ridicules the hedge fund industry, comparing it to various speculative bubbles such as the 17th-century Dutch tulip craze and the more recent dot-com implosion.

Comparing managing hedge funds to distilling “a gallon of Kentucky moonshine,” Mr. Gross – the chief portfolio manager and founder of the $390 billion PIMCO family of funds – contends that with such low barriers to entry to starting hedge funds, investors could more cost effectively place their own bets by buying futures.

Moreover, there is little gain for hedge fund investors in paying a 2% management fee and 20% of profits when “the collective wisdom of 7,000 hedge fund managers must be perilously close to the median intelligence and street smarts of the investment community as a whole,” he said.

The essay has raised more than a few hedge-fund managers’ eyebrows given the underperformance and high fees of PIMCO’s own hedge fund, the $425 million Global Relative Value fund. The fund charges 2% of assets under management, providing $8.5 million in revenue to PIMCO,a unit of German insurance giant Allianz.

Moreover, Newport Beach, Calif.-based PIMCO’s GRV fund lost 1.91% in July, according to a letter to investors obtained by The New York Sun. Overall, the fund is down 1.98% this year and 0.39% since its April 2002 debut. Regardless of the benchmark used, the fund has underperformed its peers.

The HedgeFund.net fixed-income arbitrage index of 72 (nonarbitrage) bond funds is up 2.89% this year; the 121-fund bond arbitrage index is up 4.04%.

The GRV fund’s positions, according to the investor’s letter, were largely money losers across the board last month, save for the fund’s bets on swap spreads and emerging markets debt, which provided eight and seven basis points of return, respectively. The fund also made small amounts in “implied inflation” bonds and its cash position.

The fund’s investor’s letter said bad bets on short positions in mortgage-backed securities led to 47 basis points worth of losses. The fund said it lost 62 basis points hedging its shorter duration bonds due to “bond market gyrations.” A bet that the yield curve would steepen – i.e. that the yield differential between the shorter and longer maturities would widen, as has been the case for the past several years – cost the fund 39 basis points.

The fees charged by PIMCO to invest in the fund Mr. Gross personally oversees – the $74 billion PIMCO Total Return fund – are also significant: a 4.5% initial sales charge and an annual expense load of 0.9% of assets. The sales charge, unlike hedge fund management fees, is a one-time assessment.

A half a dozen rival hedge fund managers contacted by The Sun said they could not think of a reason why Mr. Gross would publish an article critical of the industry without at least a disclaimer saying his company manages a hedge fund with all of the flaws outlined in his piece. None, however, would go on the record.

A PIMCO spokesman, James Clarke, declined to comment.

Mr. Gross’s monthly letters are considered must-reading by both Wall Street dealers anxious to do business with one of its most active bond-trading customers, as well as financial reporters, who relish Mr. Gross’s in-depth exploration of a variety of wide-ranging topics, including his opposition to the war in Iraq.