Investing

TCW Investors Plan Redemptions


By Sree Vidya Bhaktavatsalam and Christopher Condon

(Bloomberg) — Two clients of TCW Group said they plan to pull money from the Los Angeles-based fund manager, a sign that the departure of one-fifth of the fixed-income department may spur redemptions.

At least 14 professionals have left since the Dec. 4 ouster of Jeffrey Gundlach as chief investment officer, according to two people familiar with the matter. They include Phil Barach, co-manager with Gundlach of the $11.9 billion Total Return Bond Fund (TGLMX), and four managing directors: Louis Lucido, Vincent Fiorillo, Joel Damiani and Joseph Galligan. The five confirmed their resignations yesterday.

Gundlach, who worked for TCW since 1985, oversaw about $65 billion in fixed-income assets, or 59 percent of the firm's $110 billion. His sudden dismissal may prompt investors to reassess TCW even as the firm moves to install a new bond team from Metropolitan West Asset Management, the Los Angeles-based rival it is purchasing in a deal announced last week.

"We have real concerns about the continuity of the fund," said Andrew Douglas, chief investment officer at Dubuque Bank & Trust Co.'s wealth-management unit in Dubuque, Iowa. "Now we have this big unknown. Can these people navigate that space as well as he did?"

Gundlach had threatened to leave the firm and take key personnel with him, a move that would have impaired its ability to manage money, TCW spokeswoman Erin Freeman said yesterday. TCW has about 65 employees in its fixed-income department.

"We anticipated possible departures and believe with the addition of the Met West team, we can ensure the stability and continuity of clients' fixed-income assets," Freeman said.

Douglas, who oversees about $1.5 billion for wealthy investors, said he will withdraw $4 million of the $23 million he has invested in the fund on behalf of his clients, and will consider moving the rest soon.

'Surprising and Disheartening' Kurt Brouwer, a financial planner at Brouwer & Janachowski LLC in Tiburon, California, called the change "particularly surprising and disheartening." His firm, which has "several million" dollars in TCW Total Return, will probably sell its shares, he said in an interview.

"Ironically, we were planning to add to the fund, and now it is very likely that we will sell," said Brouwer, whose firm manages about $800 million.

The Total Return Bond Fund, TCW's largest, beat 99 percent of rivals in the past five years, Bloomberg data show.

Buyout Proposal Gundlach, 50, said in an interview that it's "not true" that he threatened the firm. He said he proposed a $700 million management-led buyout to TCW Group in September and didn't get a response.

Gundlach held conversations earlier this year with rivals including Legg Mason Inc.'s Western Asset Management Co. and BlackRock Inc. (BLK) about a role at those firms, according to people familiar with the talks. The conversations ended and no agreement was struck, the people said.

Eric Jacobson, director of fixed-income research at Chicago-based Morningstar Inc., said asset managers are vulnerable to losing clients when a prominent manager leaves.

"It's true what they say, the assets of a fund company take the elevator down and walk out the door every night," Jacobson said in an interview.

Gundlach said he's considering starting his own company or linking with another asset manager. His fund returned an average of 7.9 percent annually in the past 10 years. That topped the 7.7 percent gain by Pacific Investment Management Co.'s Total Return Fund (PTTRX), managed by Bill Gross, according to data from Morningstar.

"Starting my own firm is a possibility," Gundlach said. He said he has received "many inquiries" about partnerships with existing firms.

IPO Plans Societe Generale (GLE:FP), the Paris-based bank that owns TCW, said it would consider taking the fund unit public, and hired Citigroup Inc. in July to explore changes to the firm's ownership structure.

TCW said Tad Rivelle will be head of high-grade fixed- income investing after the Metropolitan West acquisition is completed in the first quarter. Michael Reilly has been named head of equities. The acquisition will add $30 billion in assets and 115 employees, TCW said.

TCW was founded in 1971 by Robert Day. About two-thirds of its assets are in bonds and the remainder in stocks and alternative investments such as hedge funds.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net; Christopher Condon in Boston at ccondon4@bloomberg.net

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