1. bloomberg markets month 2010
48
More than 40 members
of Gundlach’s TCW
team have joined him
at DoubleLine.
By Edward Robinson and
Sree Vidya Bhaktavatsalam
BONDS
AND
BETRAYAL
Photograph by david strick
3. bloomberg markets april 2010
50
Arelentlessself-promoterwhodescribeshimselfasa“money
machine,”Gundlachoutperformed99percentofhisrivalfixed-
incomemoneymanagersfrom2005to2009,accordingtodata
compiledbyBloomberg.Hislieutenantscall him“theGodfather”
fortheloyaltyhecommandsandtherichstreamofassetmanage-
mentfeeshebringsin.“Iamamazinglybrilliantanalytically,”
saysGundlach,awirymanwhoseshortbrownhairhugshisskull
likeahelmet.“I’mtheguywhomakesitraininthedesert.”
TCW Chief Executive Officer Marc Stern fired his rainmaker
on Dec. 4. Stern,
65, who former
colleagues say is as
hard-charging a
figure as Gund-
lach, referred to
the ousted money
manager as a
“prima donna” on
a conference call
with TCW em-
ployees on Dec. 7.
A month later,
TCW accused
Gundlach in a law-
suit of stealing trading and contact data for thousands of clients
so he could open his own firm, Los Angeles–based DoubleLine
Capital LP.
Gundlach,whoduring24yearsrosefromajunioranalystto
manageabout70percentofTCW’s$110billioninassets,denies
theallegationsinthelawsuit.InacountersuitfiledonFeb. 10,
GundlachcontendsTCWoustedhimlargelytotakecontrolof
the15fundsheranandkeep$600millionto$1.25billioninfees
histeamwasduetobepaidoverthenextfewyears.Thefeudhas
woundedTCW,whichinFebruarytooktheunusualmoveof
slashingitsfeesintwoofGundlach’sformerfundstoinducein-
vestorstokeeptheirassetsatTCW.Withyearsofbadbloodbe-
tweenGundlachandStern,thisbattleisn’tjustbusiness—it’s
personal. “It’s a bitter divorce,” says Neil Rue, a managing
director at Pension Consulting Alliance Inc., a Portland,
Oregon–basedfirmthatadvisesinstitutionalinvestors.
Thisisastoryrootedinoldgrudgesovermoneyandthepe-
rennialtensionbetweenthesuitsintheexecutivesuiteandthe
investmentwizardsonthetradingfloor.ItbeginsinJuly2001,
whenSocieteGeneralepushedintoU.S.assetmanagementby
acquiringTCW.OriginallyknownasTrustCompanyoftheWest,
thefirmwentontoinvestmoneyforinstitutionssuchastheCal-
iforniaStateTeachers’RetirementSystemandCornellUniver-
sityandcountedHenryKissingerandEnronCorp.founder
KennethLayasdirectorsinthe1980sand1990s.TheFrench
bankawardedfreshequityinTCWtoitsseniorofficersand
skippedoverthemoneymanagers,formerTCWexecutivessay.
ThemovedilutedGundlach’sexistingstake,andthemoney
managersaysheneverforgotthesnub.
Paris-basedSocGen,a146-year-oldretailbankthathadlong
laggedbehindrivalsinmergersadviceandunderwriting,became
oneoftheworld’stopissuersofequityderivativesafter2000.
TheninJanuary2008,asthecreditcrisiswaspickingupmomen-
tum,SocGendisclosedthatithadlost€4.9billionunwindingun-
authorizedbetsthattraderJeromeKervielhadmadeonstock
indexfutures.Kerviel,33,maintainsheactedwiththeknowledge
ofhissupervisorsandhasn’tbeenaccusedofpersonallyprofiting
fromthetrades.Followingthescandal,CEODanielBoutonre-
signedandhissuccessor,FredericOudea,movedtospinofffar-
flungassetmanagementunitssuchasTCW.
For Gundlach, who ran his investment team as a quasi-
autonomousfiefdomandwhohaspersonallyearned$134mil-
lion since 2005, Oudea’s course augured the end of his
independence. Last September, the money manager, who spe-
cializes in mortgage-backed securities, threatened to lead a
mass defection of his 65-member investment team to his own
firm, Stern wrote in January in an e-mail to Bloomberg News.
“This would have had an adverse and negative reaction on our
fixed-income business,” said Stern, who declined to comment
further. Gundlach denies the allegation, saying he wanted to
protect his TCW business, not quit.
OnthesamedayinDecemberthatGundlachwassackedfor
allegedlystealingclientinformation,TCWannounceditwasac-
quiringMetropolitanWestAssetManagementLLC,acrosstown
rival,totakeoverhisfunds.
On a conference call with TCW’s 700 employees on Dec. 7,
Robert Day, the firm’s founder and chair-
man, said terminating Gundlach was
necessary for the good of the company,
according to a recording of the meeting.
JasonLaVeris/FilmMagic
GUNDLACH’S
LIEUTENANTSCALL
HIM‘THEGODFATHER’
FORTHELOYALTYHE
COMMANDSANDTHE
STREAMOFFEESHE
BRINGSIN.‘I’MTHEGUY
WHOMAKESITRAIN
INTHEDESERT,’THE
MONEYMANAGERSAYS.
Marc Stern, CEO
of TCW, fired
Gundlach.
4. april 2010 bloomberg markets
51
Day, 66, had been a father figure to Gundlach early in the money
manager’s career. Now, three days after Gundlach’s termina-
tion, Day likened his one-time protege to a soldier who rocked
George Washington’s boat as it crossed the Delaware River in
1776. “Your choices are very simple,” Day told his employees.
“You shoot the soldier and throw him overboard, otherwise
everybody in the boat goes down.” Day declined to comment
for this article.
Hours after he was fired, Gundlach returned to a private of-
fice he used in Santa Monica to find the lock on the front door
removed. Inside, he says, about seven private investigators
hired by TCW were searching through his desk and had broken
open his filing cabinets. Gundlach says he protested the intru-
sion and one of the investigators told him to leave the office im-
mediately. The TCW men discovered marijuana stored in jars,
drug paraphernalia, pornographic DVDs and a dozen “sexual
devices,” according to the company’s lawsuit. TCW alleges that
Gundlach’s possession of the material at an office it considered
part of the firm’s workplace violated its employment rules and
showed he wasn’t fit to manage money for clients or supervise
employees as the chief investment officer of the company.
undlach says the drugs, porn and sex
toys are relics from a closed chapter in
his life and were stored in a crate. He
says TCW disclosed their existence to
damage his reputation with investors.
“It’s ancient stuff, like a box in an at-
tic,” he says. “But they figured, ‘Let’s
try and destroy the guy and throw
some slander and sleaze on him.’”
Gundlach,whofavorscustom-made
Brionisuits,isequallyathomeopiningonthenuancesofthe
yieldcurveorthegeometryofPietMondrian’sgridlikepaintings,
whichhecollects.He’salsobluntandpronetopoundingtheta-
blewhenmakingapoint.Onthetradingfloor,Gundlachopenly
chastisesco-workersformistakesoreventheirchoiceofnecktie,
formercolleaguessay.“He’saprincipledandhonestguy,but
sometimeshegetshimselfintotroublebyspeakinghismind
withoutanysugarcoating,”saysFrederick
Horton,amoneymanageratTCWfrom
1993to2005andnowamanagingdirector
inNewYorkatStrategosCapitalManage-
mentLLC.“Itcancomeoffasarrogance,
butIdon’tthinkhemeansitthatway;it’s
justpartofhismakeup.”
Investors say Gundlach’s performance
backs up his bluster. His former flagship
mutual fund, the TCW Total Return
Bond Fund, gained 20 percent in 2009,
more than double his peers’ average of
8.6 percent, according to Bloomberg
data. The portfolio’s 7.8 percent annual
return during the decade ended on Dec. 4
beat the 7.6 percent performance of the
Pimco Total Return Fund run by Bill
Gross, co–chief investment officer at
Pacific Investment Management Co. in
Newport Beach, California, according to
Morningstar Inc. In July, the U.S. Treasury selected TCW
largely on the strength of Gundlach’s record as one of nine
managers for its Public-Private Investment Program to buy
distressed mortgage assets.
Gundlach got into the investing business by chance. He was
born in 1959, in Buffalo, New York, into a German-American
family of scientists. His father, Arthur, was a chemist at a paint
manufacturer, and his uncle Robert Gundlach, a physicist, was
the primary inventor of the modern photocopier at Xerox
Corp., according to the National Inventors Hall of Fame. After
graduating from Dartmouth College in New Hampshire with a
bachelor’s degree in philosophy and mathematics, Gundlach
AntoineAntoniol/Bloomberg
Frederic Oudea,
CEO of SocGen,
wanted to spin
off TCW.
G
THEMAKINGOFAFEUD
•Jan.26,2009:SocieteGeneraleannouncesplanstospinoffTCW;
Gundlachfearsalossofcontrol.
•Sept.3:GundlachconfrontsCEOSternaboutrumorshewillbefired,
spurringTCWtostartaprobeofthemoneymanager’steam.
•Dec.4:TCWfiresGundlach,whoformsDoubleLineinthenexttwoweeks.
•Jan.7,2010:TCWsuesGundlachforallegedlystealingtradesecretsand
possessingdrugsandpornography.
•Feb.10:Gundlachcountersues,accusingTCWofoustinghimtokeep
millionsinfeeshe’sowed.
5. bloomberg markets april 2010
52
enrolled in Yale University’s Ph.D. program in theoretical
mathematics. His thesis, “The Probabilistic Implications of the
Non-Existence of Infinity,” went against 20th-century mathe-
matical canon, which is based on the assumption that infinity
exists. He left Yale before completing his degree and moved to
Los Angeles in 1983.
Gundlach led a carefree existence on the West Coast, playing
drums for a rock band called Nuisance. One evening in 1985, he
watched the TV program Lifestyles of the Rich and Famous and
saw that investment bankers were the top-paid professionals in
America. Inspired, he flipped through the Yellow Pages, calling
investment firms. Gundlach, then 26, landed a 90-day proba-
tionary position as a quantitative analyst in the fixed-income
unit at Trust Company of the West for $30,000 a year.
ayfoundedTCWin1971.He’sthe
grandsonofWilliamKeck,thefounderof
SuperiorOilCo.inCoalinga,California,
whichwassoldtoMobilCorp.in1984for
$5.7billion.DaystructuredTCWasa
confederationofsemiautonomousbou-
tiquesratherthanahighlycentralized
firm,saysaformerTCWexecutivewho
knowshim.Dayplayedapaternalroleat
TCWbybestowingautonomyandgener-
ousfee-sharingagreementsonhisfavoredmoneymanagers,with
somekeepingmorethanhalftherevenuetheirteamsgenerated,
theexecutivesays.AtChristmas,hethrewagalaathisBeverlyHills
homeforhistoppeopleandtheirfamilies.A10-piecebandand
circusclownsentertainedguests.
AtTCW,Gundlachsayshedevouredthe1972 classicprimer
onbonds,InsidetheYieldBook,andstudieditsformulas.Heem-
bracedmortgagebondsandsetouttosolvewhathecalled“the
conundrumofprepaymentrisk.”Manyinvestorsavoidedmort-
gagebondsinthosedaysbecausewhenever
interestratesfell,borrowersrefinancedto
settlehomeloanslongbeforetheirterms
expired.Thatwipedoutgains,including
thosebasedonhigherinterestpayments.
Gundlachsaysmostmoneymanagers
erredbyusingpastpatternstopredict
ratemovesandprepaymentlevels.There
aretoomanyvariablestomakeaccurate
forecasts,fromFederalReservepolicyto
thehousingmarket,hesays.
Soworking with fellow money man-
ager Philip Barach, Gundlach developeda
systemcalled“scenarioanalysis.”Itmixed
bondsofvaryingcreditriskandduration
togethertoaccommodateanyratemove.
Thosebondsthatunderperformedwhen
ratesfellwereoffsetbyenoughwinnersto
produceprofits,Gundlachsays.
InMarch1989,DayagreedtoletGundlach
lead his own mortgage-backed securities investment team and
retain about half of its asset management fees to distribute to
his people as compensation, the money manager says. By late
1992, Gundlach had attracted $10 billion in investor assets and
the following June unveiled the TCW Total Return Bond Fund.
Day offered Gundlach the option to buy an equity stake in
TCW, which was coveted by money managers and senior execu-
tives. And the chairman sat his prized pupil next to former U.S.
Secretary of State Kissinger, a TCW director from 1981 to 2003,
at luncheons following periodic board meetings, Gundlach
says. “I was happy,” he says. “I believed.”
AcrosstheAtlantic,SocieteGeneraleCEOBoutonwasmoving
in2001tobecomeaglobalplayerafterlosinghisbidtoacquireri-
valParibasSAtoBanqueNationaledeParisSA.SocGen,which
wasprivatizedin1987following42yearsasastate-runinstitu-
tion,boughtbanksintheCzechRepublicandSlovenia.InJuly
2001,SocGenpurchased51percentofTCWfor$784millionand
agreedtopayabout$425milliontoincreasethestaketo70percent
overfiveyears;DayandTCWretainedtheremaining30percent
ofequity.Stern,alawyerwhojoinedTCWin1990afterservingas
presidentoflifeinsurerSunAmericaInc.,playedakeyrolein
negotiatingthedeal,saytwoformerTCWmoneymanagers.
SocGengrantednewequitystakesinTCWonlytosenioroper
atingexecutives,themoneymanagerssay.
Gundlach says he was furious because
the issuance of new equity diluted his
existing stake by a quarter, decreasing its
value by $15 million. Stern had violated a
pledge to never diminish his holding,
Gundlach says. “That’s absurd,” TCW
spokeswoman Erin Freeman says. “Soci-
ete Generale’s acquisition of TCW did in-
volve some dilution, and it was the same
for each shareholder commensurate with
the shares owned.”
In September 2005, the TCW board
elevated Gundlach to chief investment
officer as part of a move to bring the next
generation to power at the firm. Day re-
linquished his CEO title to Robert Beyer,
TimRue
D
FILE:tcwstk7
SIZE:19p6 x 12p7
SECTIONS:feature
DESIGNER:ev
NOTES:
Figures are through Dec. 31, 2009. Source: Bloomberg
Jeffrey Gundlach’s returns edged those of Pimco’s Bill Gross in
two key performance measures.
GUNDLACH TOPS GROSS
21%
14
7
1-year return 3 years 5 years
TCW Total Return Bond Fund
Pimco Total Return Fund
Bill Gross runs
the Pimco Total
Return Fund.
6. bloomberg markets april 2010
54
charlienucci
then 45, a former fixed-income money manager, and Stern
stepped aside as president to become vice chairman.
WhentheKervielscandalhitSocGeninJanuary2008,TCWwas
immediatelyaffected.Frenchregulatorsopenedaninsider-trading
probeofDay,thenaSocGendirector,afterheandhisfoundation
sold€148millionworthofthebank’sstockbeforeSocGenpublicly
disclosedthetradinglossesonJan.24,accordingtoregulatoryrec
ords.JoshPekarsky,aspokesmanforDay,saysDayusednoinside
informationwithrespecttothestocksalesandiscooperatingwith
theinvestigation.DayresignedfromSocGen’sboardonDec.31.
udea,46,SocGen’sformerchieffinan-
cialofficer,tookthehelminMay2008
withamandatetostaunchthebank’s
losses.Thecarnagewouldhavebeen
farworseforSocGenhadWashington
failedtoexecutea$182billionbailout
ofAmericanInternationalGroupInc.
in2008.SocGenheld$16.5billionin
credit-defaultswapsissuedbyAIG,
thelargestsuchexposure,according
tofilingswiththe SecuritiesandExchangeCommission.Under
adealarrangedbytheFederalReserveBankofNewYork,then
ledbyTimothyF.Geithner,theinsurersettledtheswapswith
SocGenandother AIGtradingpartnersat100centsonthe
dollar.Thedecisionspurredaccusations
fromU.S.CongressmembersthatGeith-
ner,whoisnowtheU.S.Treasurysecre-
tary,gavethebanksa“backdoorbailout”
attheexpenseoftaxpayers.(See“The
[Redacted]BailoutofAIG,”page61.)
Gundlach,too,wasinvestinginthe
exoticinstrumentsthathelpedfuelthe
crash.Underhisdirection,TCWbecame
theNo. 1managerincollateralized-debt
obligations,with$41.3billionunderman-
agementasofSept.30,2007,accordingto
datafromStandard&Poor’s.Thatincluded
$35.1billionofCDOscomposedofasset-
backedsecurities,includingmortgages.
GundlachsayshisCDOsrotatedoutof
high-riskhomeloansearlyinthecredit
crisisandescapedtheworstofit.
InJanuary2009,SocieteGeneralesaid
TCWwouldbespunoffinastockoffering
sometimeinthenextfiveyearsaspartofa
reorganizationofitsassetmanagement
division.Gundlachsaysheassumedthe
FrenchwouldsellTCWiftherightoffer
wasmade.AttheendofMay,Daysum-
monedGundlachtohishometomeetwith
himandStern.ThetwomentoldGundlach
thatBeyer,TCW’sCEO,wasabouttoan-
nouncehisretirementattheageof49and
SternwastobenamedCEO.Gundlach
blewup.“Iwaslike,‘No!No!Whatdoyou
meanyou’recomingback?Youturnedthis
overtothenextgeneration.Thisisallcom-
pletelytheoppositeofwhatIwasledtoex-
pect,’”Gundlachsays.Beyerdeclinedtocomment.
ThetwomenofferedtomakeGundlachpresident,whichhe
saysherejected.Gundlachhadneverforgottenthedilutionofhis
equitystakein2001,andhesaysheaccusedSternofstealing
$15 millionfromhim.Themeetingendedbadly.“Gundlach’s
claimsarewithoutmerit,”TCWspokeswomanFreemansays.
InlateAugust,Gundlachsays,heheardrumorsthatSternhad
convenedateamoflawyerstofirehim.OnSept.3,themoney
manageraskedSterntojoinhimandmembersofhisteamina
conferenceroomoffthetradingfloortocleartheair.Themood
wastenseasthemoneymanagerandtheCEOfacedoneanother,
accordingtoanaccountbyGundlachandBarach.Gundlach
askedSternwhetherhewasplanningtofirehim.Sternreplied
no.GundlachaskedwhetherSocGenwasgoingtosellthefirm.
Sternagainansweredno.Gundlachthenmadeanoralofferto
buy51percentofTCWfor$350million.Andseveralofhistop
lieutenants,includingBarachandmoneymanagerLouisLucido,
voicedsupportfortheirboss.“Justsoyouknow,ifanything
happenstoJeffrey,we’regoingwithhim,”Lucido,nowexecutive
vicepresidentatDoubleLine,sayshetoldStern.
O
Tania Modic’s
Western Invest-
ments Capital
placed money
with TCW.
7. bloomberg markets april 2010
Philip Barach, president
of DoubleLine, left TCW
to work with Gundlach.
56
davidstrick
ternconsideredGundlach’sbehavior
confrontationalandinsubordinateand
cameawayconvincedthemoneyman-
agernowposedathreattothewelfareof
thefirm,saysaTCWexecutivefamiliar
withStern’sviews.Gundlach’sinformal
buyoutbidwasrejected,JacquesRipoll,
head of SocGen’s global investment
group, wrote in a January e-mail to
BloombergNews.TCWlawyersstarted
readingGundlach’se-mailsandallegedlyfoundsomeinwhichhe
declaredwaronTCWandsolicitedhissubordinates’allegiance
tohim,accordingtothecompany’slawsuit.TCWinvestigators
monitoredandrecordedhisteam’scomputeractivity.
BeginninginearlySeptember,membersofGundlach’steam
allegedlystarteddownloadingdataoneveryholdingofevery
clientinthemortgage-backed-securitiesgroupandcontactin-
formationformorethan24,000TCWclientsfirm-wide,accord-
ingtothesuit.Gundlach’sdeputiesalsoengagedacommercial
real estate agent to find an office that could accommodate a
50-desktradingfloorandregisteredthename
DoubleLine on Nov. 22 in Delaware, the com-
plaint says.Attheendofthemonth,Sternbriefed
Ripollandreceivedhisblessingtotakethenext
step,theTCW
executivesays.
Afterlunchon
Friday,Dec.4,
Gundlachwasat
hisdeskonthe
16thfloorwhenhe
gotacallfrom
MichaelCahill,
TCW’sgeneral
counsel,asking
himtocomeup
oneflighttotheex-
ecutivesuite.Stern
wasn’tthere.CahilltoldGundlachhisTCWcareerwasover,the
moneymanagersays.TheattorneytriedtogiveGundlachalegal
documentdescribinghowheandhisteamtookconfidentialin-
formation.Gundlachsaysherefusedtotakeitandturnedtogo,
sayinghehadtradestocomplete.Cahilltoldhimhecouldn’tre-
turntohisdesk.Gundlachsaysheduckedintoastairwelland
Cahillandanotherlawyerfollowedhimdown17
flightstothestreet,demandinghetakethepa-
pers.TheygaveupasGundlachtookoffalong
FigueroaStreetindowntownLosAngeles.Cahill
declinedtocomment.
Gundlachsayshedidaskdeputiestofindof-
ficespaceandregisterDoubleLineincaseTCW
firedhim.Hedeniesdirectingemployeestosteal
clientdataoranyothertradesecrets.
InthetwoweeksafterGundlachwasousted,
morethan40membersofhisTCWteamquitto
joinDoubleLine.BarachisnowDoubleLine’s
president.OaktreeCapitalManagementLP,a
LosAngelesfirmwith$67billioninassets,in-
vestedanundisclosedsuminDoubleLinefora
22percentstake.
InhisFeb.10answertoTCW’slawsuit,
GundlachsaysDoubleLinehashiredafirmto
searchcomputersbelongingtoformerTCWem-
ployeesandreturnanydatathatmightbeintheir
possession.“DoubleLine’sestablishmenthas
notinvolvedtheuseofanyTCWinformation
whatsoever,”Gundlachsays.
Gundlach contends that TCW canned him
largely to capture all of the fees from funds that
he and Barach set up in 2007 to invest in dis-
tressed mortgage-backed securities, including
two with $3 billion in assets. Gundlach says the
strategy returned 60 percent in 2009. Along
with revenue from his other funds, Gundlach
says he was personally eyeing a payday of about
$500 million over the next few years. “They just
wanted to broom-sweep me out and shanghai
my business,” he says.
S
GUNDLACHINVESTED
INEXOTICINSTRU-
MENTSTHATHELPED
FUELTHECRASH.
TCWBECAMETHE
NO.1MANAGEROF
COLLATERALIZED-DEBT
OBLIGATIONS,WITH
$41.3BILLION
UNDERMANAGEMENT.
8. 58
bloomberg markets april 2010
JeffreyGundlachformedTCW’sflagshipTCWTotalReturnBond
Fundin1993.TypeTGLMXUS<Equity>DES<Go>foradescription
ofthefund’sassetsundermanagementandreturns.TypeMHD
<Go>foralistingoffundholdings.
YoucanusetheHistoricalFundAnalysisfunctiontocompare
theperformanceoftheTCW
TotalReturnBondFundwith
thePimcoTotalReturnFund.
First,typeTGLMXUS<Equity>
HFA<Go>,andthenclickonthe
arrowtotherightofVs.andse-
lectSingleFund.Finally,enter
PTTRXUS<Equity>inthefield
thatappearstothefarrightof
Vs.andpress<Go>tocompare
thereturnsofthetwofunds,as
shownatright.
YoucanusetheBloomberg
Law Search (BBLS) function to search for documents related to
legal proceedings brought againstGundlach by TCW. Type BBLS
<Go>, click on United States and then on All United States so
that the search criterion appears under Selected Sources at the
bottom of the screen. Tab in to the Enter Search Terms field,
enter JEFFREY GUNDLACH
and type <Go> 1 <Go>.
To see the docket for
TCW’s case against Gundlach,
including a summary of pro-
ceedings, click on the item
titled Trust Company of the
West vs. Jeffrey Gundlach et al,
Docket No. BC429385. Click on
1 under Docket Proceedings to
request a copy of the initial
complaint filed on Jan. 7, 2010.
BETHWILLIAMS
TCW’sFlagshipFund
To write a letter to the editor, type MAG <Go> or send an e-mail to
bloombergmag@bloomberg.net.
Freeman disputes that allegation. “He was let go because he
stole from the company,” she says.
TCW said it planned to start an equity-based compensation
plan in the first quarter to retain employees. “The priority now
is to concentrate on moving the business forward,” Ripoll
wrote in an e‑mail on Feb. 11.
TCW’sstandingwithclientshasbeenshakenbyitsfiringof
Gundlach:In
December,TCW
saiditwouldliqui-
dateits$1billion
PPIPfundfordis-
tressedassetsafter
Gundlach’sdis-
missal triggereda
so-called key-
man clauseand
promptedtheTrea-
surytofreezethe
firm’sparticipation
intheprogram.In-
vestorspulledmore
than$6billioninassetsfromtheTotalReturnfundbetweenDec.4
andFeb.8,accordingtoMorningstar.InJanuary,pensionfundsin
Colorado,KansasandTexaswithdrewatotalof$1.2billionfrom
TCW.“Wedecidedtoterminatebecausewe’renolongergetting
theteamwesignedupfor,”saysRobertSmith,chiefinvestment
officerattheKansasPublicEmployeesRetirementSystem.
InvestorsinTCW’sdistressedfundsarelividthattheirholdings
havebecomepawnsinthedispute,saysTaniaModic,CEOof
WesternInvestmentsCapitalLLCinInclineVillage,Nevada,
whichput$10millioninthefunds.ClientsaskedTCWtopermit
themtomakeso-calledin-kindtransfersofassetstoanotherfirm
sotheydon’thavetoliquidatethesecuritiesintocash.TCWsaysit
declined,offeringanoptiontoslashfeesto1 percentonassetsand
5 percentonprofitsfrom2percentand20percent.Modicsaysit
appearsthatTCWwouldratheralienateitsclientsthanseethem
transfertheirassetstoDoubleLine,whichiswhatshewantstodo.
“Somethinghappenedtogettheirpantiesinatwistbecausetheir
behaviorisbizarre,”Modicsays.“Thisshowsgrossdisrespectfor
investors.”FreemansaysTCWistreatingitsinvestorsfairly.
Gundlachisalsofeelingthefallout.TCWisseekingatleast
$200millionindamagesfromDoubleLineandwantsittorelin-
quishitsrevenue.ThelawsuithashinderedDoubleLinefrom
raisingassetsbeyondthe$3billionbroughtinsofar,Gundlach
says.PensionconsultantRuesayshe’sadvisedinstitutionalin-
vestorsnottocommitcapitaltoDoubleLineuntilthelitigation
playsout.
AtDoubleLine’soffices,locatedafewblocksfromTCW,
Gundlachstridespastelectriciansworkingonhishalf-completed
trading floor and points to a spot where he plans to blow a hole
in the ceiling and install a minimalist sculpture by the late artist
Donald Judd. Gundlach, after more than two decades managing
money, is now starting over. This time around, with a lawsuit
threatening his new firm, he may find that repairing a career can
be harder than building one. ≤
Edward Robinson is a senior writer at Bloomberg Markets
in San Francisco. edrobinson@bloomberg.net Sree Vidya
Bhaktavatsalam covers mutual funds at Bloomberg News in
Boston. sbhaktavatsa@bloomberg.net
TCWINVESTORSARE
LIVIDTHATTHEIR
HOLDINGSAREPAWNS
INTHEDISPUTE.‘SOME-
THINGHAPPENEDTO
GETTHEIRPANTIESIN
ATWIST,’TANIAMODIC
SAYS.‘THISSHOWS
GROSSDISRESPECT
FORINVESTORS.’
