Stock pickers at ex-employer TCW are on a roll, but many have committed to stay
DoubleLine Capital LP could be going back to the well in its quest to create an equity investment team.
Jeffrey Gundlach, founder and CEO of the fixed income manager, said Wednesday that the firm for the first time is considering expanding its product lineup to include equities.
The timing of Mr. Gundlach's comments raise some interesting questions. In an article last month in Pensions & Investments, management at TCW Group Inc. — Mr. Gundlach's former employer — declined to comment about whether equity mutual fund managers at the company had signed new long-term contracts following TCW's sale to private equity firm The Carlyle Group LP.
As part of the deal, TCW employees have the ability to boost their equity stake in the firm to 40%, up from 17%. To do so, however, they must sign new long-term contracts that include lower salaries, but higher stock grants.
While TCW appears to have locked up most of its big guns, it remains unclear how many managers in the equity group have signed on to stay.
“We're pleased that portfolio managers who oversee roughly 90% of TCW’s actively managed assets have entered into new long-term agreements to participate in the Carlyle transaction,” said company spokesman Peter Viles. “We continue to have productive discussions with other key TCW employees about participating in the transaction.”
Given that the last 10% of TCW's assets are largely managed by the equity group, there still might be an opening for Mr. Gundlach to try to beef up his team at DoubleLine.
Mr. Gundlach is no stranger to recruiting from TCW. After his ugly divorce from the company in late 2009, more than 40 TCW employees, including the former managing director of the TCW Mortgage Group, Philip Barach, and five-star emerging-markets fixed-income manager Luz Padilla, signed on at DoubleLine.
If Mr. Gundlach is able to attract any of TCW's equity managers, it could be quite a coup for DoubleLine. Thanks to their strong long-term track records, TCW's large-cap mutual funds have been able to avoid the massive withdrawals that have plagued most actively managed equity funds.
The TCW Select Equities Fund, which ranks in the 20th percentile of large-cap growth funds for the past three years and in the 10th percentile for the past five years, has led the way with $260 million of inflows through the end of August, according to Morningstar Inc., Chicago. The TCW Relative Value Large Cap Fund and the TCW Growth Fund have had $245 million and $1.2 million of inflows, respectively.
Those inflows might not seem very impressive on their own, but the very fact that investors are adding more money than subtracting is a feat in and of itself. Large-cap mutual funds have seen a net $40 billion in outflows through the end of August, according to Morningstar.
Given the industrywide trend of equity outflows, it might come as a bit of a surprise to some that Mr. Gundlach, who has built DoubleLine's assets under management to more than $40 billion in less than three years thanks to his fixed-income reputation, would consider branching out into equities. It turns out the negative perception of equities is what intrigues him.
“I like the way equities are out of favor and I like doing things when they're unpopular,” Mr. Gundlach told Bloomberg Tuesday. “Equities are a superior investment to bonds for an inflation hedge, and I like the ability to diversify and broaden the firm.”
Mr. Gundlach isn't the first bond guru to set his eyes on equities.
The bond giant Pacific Investment Management Co. LLC launched its first equity fund — the $2.2 billion Pimco EqS Pathfinder Fund — in 2010 and has followed it with three more.
Jason Kephart writes for InvestmentNews, a sister publication of Pensions & Investments.