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In bond battle, TCW says it holds on to $1.7 billion of $3 billion in funds

February 22, 2010 |  2:59 pm

L.A.-based money manager TCW Group Inc., fighting to hold on to clients’ assets after the firm fired its veteran investment chief in December, said Monday that a majority of institutional investors in two specialized mortgage bond portfolios opted to keep their money in the funds.

The firm said 199 investors behind nearly $1.7 billion, or 57%, of the $3 billion in the funds chose to remain with TCW. About 130 investors who control the other $1.3 billion voted to pull their cash out.

TCW declined to give a further breakdown of the money that’s staying. Investors who chose to keep their funds with the firm had the option of specifying that TCW wouldn’t be able to reinvest any cash on their behalf (say, from interest earnings). In other words, that option means the investors don’t want TCW picking new bonds for them, but will keep what they have.

A TCW spokeswoman said the firm wouldn’t divulge how many investors chose the no-reinvestment option. She said the “feedback from the majority of our investors has been very positive.”

Tcw logo The voting by pension funds and other institutional clients was viewed as an important test of investor sentiment toward TCW amid its bitter legal battle with star bond fund manager Jeffrey Gundlach, who was ousted from the firm Dec. 4. His departure triggered a "key man" provision that compelled TCW to give investors the right to reconsider their participation in the mortgage funds.

Gundlach, who formed a rival money management firm -- DoubleLine Capital -- shortly after he was fired by TCW, had made a concerted effort in recent weeks to draw investors away from the TCW mortgage funds. A major element of his pitch was that he picked the bonds in the two funds, which were created in 2007 and 2008, and that investors should bring their money back to him rather than leave it with the new managers installed by TCW.

Gundlach, 50, said Monday that it was “too early to tell” whether any of the $1.3 billion that will leave the TCW funds will come to DoubleLine, which he says currently manages about $3 billion in all. He noted that TCW had up to six months to liquidate investors’ holdings and send them cash.

The $3 billion in the mortgage funds is just a fraction of TCW’s total $100 billion under management. But to try to keep the investors on board, TCW agreed cut its management fee on the mortgage funds to 1% from 2% and to slash its take of the funds' future performance to 5% from 20%.

TCW last month sued Gundlach and several other ex-TCW employees, alleging that they set up DoubleLine using “vast quantities” of proprietary information they stole from TCW. Gundlach has since countersued, accusing TCW of firing him to avoid honoring an agreement to share up to $1.25 billion in potential fee income.

-- Tom Petruno
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