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TCW bond fund managers quit after firm ousts investment chief

December 6, 2009 |  3:45 pm
L.A. money manager TCW Group is facing defections by some of its top bond fund talent after the firm on Friday fired Jeffrey Gundlach, its veteran chief investment officer.

Some of the managers who worked directly with Gundlach for the last two decades in TCW’s fixed-income group resigned on Saturday despite the firm’s efforts to keep them.

Those departing included Philip Barach and Louis Lucido, two senior managers of TCW’s mortgage-backed securities portfolios. Barach also was co-manager, with Gundlach, of TCW’s $12-billion-asset Total Return Bond fund, the firm’s top-performing mutual fund.

Reached at their homes, Barach and Lucido confirmed their resignations. A TCW spokeswoman said that the company was “working to retain key employees” but declined to comment further.

Gundlach (2)In a surprise move on Friday TCW simultaneously announced that it had fired Gundlach and that it was buying smaller L.A. rival Metropolitan West Asset Management. TCW said Tad Rivelle, Metropolitan West’s chief investment officer, would take over Gundlach’s role overseeing high-quality bonds, including mortgage-backed securities.

Gundlach, 50, has long been a star of the mortgage-bond world, racking up hefty returns both before and after the housing market bust. His expertise in mortgage securities helped make TCW one of the country’s biggest managers of fixed-income securities. The bulk of the firm’s $110 billion in assets are in bonds.

TCW didn’t say specifically why it ousted Gundlach, but rumors have been circulating on Wall Street for months that he was unhappy with the firm and that he was considering jumping ship.

TCW’s move was seen as a preemptive strike. Marc Stern, TCW’s chief executive, said in a letter to clients on Friday that Gundlach “threatened to take certain actions that could have jeopardized the firm’s ability to manage clients’ fixed-income assets. The firm had no alternative but to take the necessary steps to ensure the continuity and stability of its high-grade fixed income business and the highest standard of attention to clients’ interests.”

Gundlach has declined to comment since his ouster.

TCW, founded in 1971, is owned by French banking giant Societe Generale. The bank bought a controlling stake in the firm in 2001 from founder Robert Day.

But Societe Generale announced this year that it planned to sell or spin off TCW in the next five years. That has fueled speculation that TCW’s management would lead a leveraged buyout of the firm. Gundlach is rumored to have made his own buyout proposal for the firm to Stern in recent months.

By acquiring Metropolitan West and its team of bond-fund managers, TCW is hoping to hold on to clients who might fear that the loss of Gundlach -- and now, other TCW managers who were loyal to him -- will hurt future returns. Most of TCW’s assets under management are from large institutions such as corporate pension funds.

Like TCW, Metropolitan West is primarily a fixed-income firm, but with $30 billion in assets it manages far less than TCW.

The TCW spokeswoman said the firm has been talking by phone with major bond-fund clients this weekend to assure them that Rivelle and his team at Metropolitan West would provide a “seamless transition” from Gundlach’s management role.

-- Tom Petruno

Photo: Jeffrey Gundlach. Credit: Annie Wells / Los Angeles Times