Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

TCW pulls out of government program to buy toxic mortgage assets

January 4, 2010 |  9:25 pm

L.A. money manager TCW Group has dropped out of the Treasury’s program to buy toxic-mortgage assets from banks, and will return to investors the $500 million it raised for the program.

The move is more fallout from TCW’s decision a month ago to fire its chief investment officer, Jeffrey Gundlach. He was slated to manage TCW’s participation in the Treasury’s so-called Public-Private Investment Program, or PPIP.

Gundlach, considered one of the country’s sharpest investors in  mortgage securities, was ousted amid a power struggle at TCW. He has since formed his own investment company, DoubleLine LLC. About 40 other TCW staffers have left the firm in the last month to join Gundlach.

After Gundlach’s firing the Treasury quickly suspended the fund TCW had raised for the PPIP. Under TCW’s agreement with the government, the Treasury had the right to put the fund on hold while it requested information about who at TCW would be managing the portfolio, absent Gundlach.

In a statement late Monday, TCW Chief Executive Marc Stern said, “Given that we are at a very early stage of investment in this particular product, and in light of the recent changes in the portfolio management team, we believe this action is appropriate and in-line with TCW's commitment to act in the best interests of our clients.”

A TCW spokeswoman said the firm wouldn’t elaborate on its decision to abandon the program. A Treasury spokesperson couldn’t be reached.

TCW was one of nine money managers chosen by the Treasury last summer to launch the PPIP. Under the program, the money managers raised funds from private investors and the government is expected to contribute additional capital and financing to boost the total pool of money available. The goal is to use the funds to buy troubled mortgage-backed securities from banks and other financial institutions, expanding the market for such toxic assets.

But the program has been significantly scaled back from the government's initial plans, in part because prices of many rotting mortgage securities have rallied since March as the housing market has stabilized.

TCW would have earned fees on the assets it would have managed under the PPIP.

-- Tom Petruno