Defiant Gundlach: I’ll take my team elsewhere

Jeffrey Gundlach said his “inappropriate termination” by TCW Asset Management will simply give him and his mortgage-backed securities team an opportunity to create an even stronger investment organization to serve investors.

The chief investment officer and lead portfolio manager of the firm’s high-grade fixed-income funds and accounts was terminated late Friday. At the same time, TCW announced it had reached a definitive agreement to acquire bond manager Metropolitan West Asset Management.

Reached at home Sunday, Mr. Gundlach said key details on how to move forward could be worked out later this week. Whether the ultimate path is a new firm or partnering with an existing firm, institutional clients that have been relying on his team to manage more than $50 billion at TCW will be able “to keep their money with Jeffrey Gundlach,” he said.

TCW spokeswoman Erin Freeman today rejected the suggestion that TCW acted inappropriately in dismissing Mr. Gundlach. Mr. Gundlach “had threatened to leave TCW, and take key personnel with him,” leaving the firm no choice but to seek alternatives in ensuring continuity in the management of clients’ fixed-income assets, she said in an interview.

Mr. Gundlach insisted he’d made no such threat. “I didn’t want to leave TCW,” but upon hearing from well-placed sources at the firm that there was a plan afoot to “fire me,” Mr. Gundlach said today that he approached TCW’s CEO, Marc Stern, in early September to discuss how to make TCW “a safe place for our clients’ assets.” At those talks, Mr. Gundlach said he offered to buy the firm for $700 million, but never received a reply.

Asked about Mr. Gundlach’s assertion, TCW’s Ms. Freeman would only reiterate her statement that Mr. Gundlach’s threat to leave had forced the firm’s hand.

While TCW would clearly like to keep some of its veteran mortgage-backed investment team, almost 20 staffers — including key portfolio managers such as Philip A. Barach, Joseph J. Galligan, Joel A. Damiani, and Lou Lucido, and “all my top analysts” — have already resigned from TCW, Mr. Gundlach said.

Ms. Freeman disputed that assertion, saying only a handful of financial professionals from the mortgage-backed securities team Mr. Gundlach led have resigned. While noting that TCW anticipated possible resignations, she said the MetWest acquisition ensures stability in managing clients’ fixed-income assets.

Mr. Gundlach argued that anyone comparing “the returns of my funds against MetWest’s funds … will say, ‘I don’t understand why TCW would want to do that trade,’” Mr. Gundlach said.

Ms. Freeman noted that comparable funds run by TCW and MetWest both enjoy a top five-star rating from Morningstar as well as top-decile returns.

For example, the $11.9 billion TCW Total Return Bond fund ranks in the top 1% in its Morningstar category for both the three- and five-year periods through Dec. 6, and in the top 2% for the past 10 years. The $7.4 billion Metropolitan West Total Return Bond fund, meanwhile, ranks in the ninth percentile for the three- and 10-year periods through Dec. 6, and the fifth percentile for the five-year period, according to Morningstar.

Mr. Gundlach said he’s already received a “stampede of interest” from institutional clients interested in keeping their money with him and his team, and there are no contractual hurdles that would stand in the way of reaching out to those investors.

Michael Rosen, a principal and chief investment officer with Angeles Investment Advisors, said Friday that while MetWest is certainly a very credible team, the mortgage products Mr. Gundlach was most closely associated with followed “a very unique strategy,” and his departure is “obviously of great concern” for those clients.

Douglas Appell is a senior reporter at Pensions & Investments, where this story first ran.