Gundlach saga presents a challenge for TCW fund board
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Blackstone assets increase 6% for quarter, 8% for year
      Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
    • Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
    • World economic growth ‘a race between a mutating virus and vaccinations’ – IMF
      Fred DeSerio
      Commentary: A new era for manager due diligence
      CalSTRS participant retirements jump in second half of 2020
      Mexico manages breakthrough in virus-marred year
    • Signage outside the Blackstone Group Inc. headquarters in New York on July 13, 2019
      Blackstone to sell Alight to SPAC in $7.3 billion deal
      Joni Tibbetts
      Principal counts on advisers to get word out on PEPs
      Jan Jacobson
      High-court ruling thwarts ERISA stock-drop lawsuits
      Kenneth J. Munro III
      Empower names new national sales director
    • Indhira Arrington
      Ares Management adds chief diversity officer
      U.K. to require large plans to align climate-change reporting with task force standards
      BlackRock’s Fink urges others to join in net-zero commitment
      Global business leaders commit to stakeholder metrics
    • Hawk's Nest dam
      Brookfield donates golf course for firefighter training center
      Gifford Fong
      Old ties help bring local version of JOIM to mainland China
      Ryan Tedder
      Strike up the band: KKR fund takes majority stake in Ryan Tedder catalog
      Helen Dean
      NEST’s Helen Dean earns U.K. recognition for service
    • Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
    • Blackstone assets increase 6% for quarter, 8% for year
      New Jersey discloses up to $475 million in commitments
      San Mateo fund revises asset allocation
      A case of Tootsie Roll Industries Inc. Pops Halloween candy is pictured before being distributed to stores at the Associated Wholesale Grocers distribution warehouse in Goodlettsville, Tenn., on Aug. 14, 2015
      Tootsie Roll gets the GameStop treatment
    • Technology Crossover Ventures raises $4 billion for latest fund
      The Bank underground station in the square mile financial district of the City of London
      U.K. seeks input on boosting its allure to money managers
      River and Mercantile chooses head of infrastructure
      Leon Black, chairman and chief executive officer of Apollo Global Management at the annual Milken Institute Global Conference in Beverly Hills, Calif., on April 27, 2015
      Black hangs on at Apollo as Epstein links cost him CEO role
    • New Jersey Division of Investment chooses deputy director
      San Mateo fund revises asset allocation
      Chicago Park Employees names new executive director
      Wisconsin state fund racks up 15.2% annual return
    • New Jersey Division of Investment chooses deputy director
      Chicago Park Employees names new executive director
      Credit Suisse brings on head of origination for direct lending
      Indhira Arrington
      Ares Management adds chief diversity officer
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
      Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Retirement in emerging markets
      Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • New Jersey discloses up to $475 million in commitments
      Minnesota State Colleges seeks record keeper for 3 DC plans
      New York State Teachers assigns $375 million to 3 buyout funds
      GPIF hires Hamilton Lane for global private equity fund-of-funds allocation
    • New Jersey discloses up to $475 million in commitments
      Minnesota State Colleges seeks record keeper for 3 DC plans
      New York State Teachers assigns $375 million to 3 buyout funds
      GPIF hires Hamilton Lane for global private equity fund-of-funds allocation
    • Co-Administration, Financial Advisory, Transfer Agent, and Custodial Services
      Maryland State Retirement and Pension System
      Master Custodian and Related Services
      Transition Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Fred DeSerio
      Commentary: A new era for manager due diligence
      Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:33
      A look at hiring activity in 2020
      watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
    • POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for January 2021
      Graphic: A look at hiring activity in 2020
      Riskwatch for Q4 2020
      Taiwan Semiconductor’s No. 1 in the emerging markets book
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
December 28, 2009 12:00 AM

Gundlach saga presents a challenge for TCW fund board

Douglas Appell
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Whether the board of directors of the TCW Total Return Bond fund made a wise decision in blessing Jeffrey Gundlach's termination and the acquisition of Metropolitan West Asset Management to replace him ultimately will depend on whether the TCW brand or the Gundlach mystique was the main draw for the fund's investors, observers say.

    In a recent interview, Mr. Gundlach said the board can consider tapping his new firm, DoubleLine LLC, as a subadviser if it wants to halt the exodus of more than $5 billion from the fund since he was ousted on Dec. 4.

    Investors originally “signed up for” the team he led at TCW, and that team won't be available to them “unless the board of directors assigns the portfolio to my firm,” he said.

    Asked about Mr. Gundlach's offer, TCW spokeswoman Erin Freeman said the board already approved the company's Dec. 4 decision to acquire neighboring Los Angeles bond shop Metropolitan West Asset Management to replace Mr. Gundlach and his mortgage-backed securities team. About 40 of the 65 team members have left TCW to join DoubleLine.

    Still, with DoubleLine likely to garner the Securities and Exchange Commission's stamp of approval as an investment adviser over the next month or two, the fund's board could have the option of reconnecting Total Return Bond fund investors with Mr. Gundlach's team.

    Lawyers say the board is under no obligation to do so. A board of directors has “a fiduciary duty to ask what's in the best interest of a fund's shareholders,” but it's hard to argue that there's a specific legal obligation to consider Mr. Gundlach's new firm, said Thomas S. Harman, an attorney with Washington-based Morgan, Lewis & Bockius LLP, which doesn't represent either firm.

    In a situation like the current one, where investment performance has been superior, the board would have to consider how much of that performance was unique to Mr. Gundlach and his team, and whether investors were more attracted by the TCW name or Mr. Gundlach, said Mr. Harman.

    Questions like this, involving a board's business judgment, are never black and white, noted Barry P. Barbash, a Washington-based attorney with Willkie Farr & Gallagher LLP. Mr. Barbash said if he were advising a board in a situation that raised TCW-type issues, he'd strongly suggest that they should at least consider arguments of the sort Mr. Gundlach is making.

    In most cases, the money management firm, rather than the individual portfolio manager, is considered the main draw for investors, but details — such as the degree to which that portfolio manager was hyped in marketing materials — can also be taken into account.

    Even if Mr. Gundlach were the attraction for investors, however, a board would have to ask whether the environment that supported his track record — including trading, compliance, the firm's executive leadership and so on — can be replicated at a new firm, Mr. Harman said.

    Instances of directors opting to switch a mandate from a fund's subadviser to another firm are rare, observers say. In the late 1990s, independent directors lost battles to replace two advisers — Navellier & Associates Inc. and Yacktman Asset Management Co. — in high-profile court cases. More recently, in late 2005, the three independent directors of the Clipper Fund Inc. — closely associated with a retiring team led by James H. Gipson, at Old Mutual Asset Management subsidiary Pacific Financial Research — successfully opted to have Davis Selected Advisors LP take over the fund instead of Barrow, Hanley, Mewhinney & Strauss Inc., the replacement offered up by Old Mutual.

    Patrick C. Haden, the independent chairman of TCW Fund's nine-member board, did not return phone calls or e-mails seeking comment. Matthew K. Fong, another independent director, in an e-mail response, said all requests for comment were being forwarded to Mr. Haden.

    The TCW board has four other independent directors, none of whom responded immediately to e-mailed queries. Three of them — Samuel P. Bell, Richard W. Call and Charles A. Parker — are listed as private investors. The fourth, John A. Gavin, is listed as founder and chairman of Gamma Holdings, an international capital consulting firm.

    The remaining three directors are TCW executives — CEO and Chairman Marc I. Stern, Charles W. Baldiswieler, group managing director, and Thomas E. Larkin, vice chairman.

    Challenging issues

    While boards are given considerable leeway in hiring and retaining a fund's investment adviser, a contentious break with a star manager can prove especially challenging.

    The legal relationship of the fund a board oversees is with the money management firm rather than an individual portfolio manager, but in the case of a real star manager, investors presumably bought the fund on the strength of that manager's track record, noted Gregory D. Sheehan, a Boston-based attorney with Ropes & Gray LLP. “When they go to war” it can leave a board in a very difficult spot, he said.

    In such cases, a board's first concern is that the money management firm find a credible replacement for the star manager so “everybody isn't running for the exits,” said Mr. Sheehan.

    Observers say the team at Metropolitan West — whose own top-decile total return bond fund's performance is within hailing distance of Mr. Gundlach's — is certainly credible.

    Despite that, outflows from the TCW Total Return Bond fund since Dec. 4 have been considerable.

    According to Morningstar Inc., TCW's Total Return Bond fund had $6.6 billion in client assets as of Dec. 23, down $5.3 billion, or 45%, since Mr. Gundlach was fired.

    On Dec. 11, when redemptions stood at $3.5 billion, Ms. Freeman said that outflows had trailed off sharply. Even so, over the following 12 days, investors removed another $1.8 billion from the fund.

    In the interview, Mr. Gundlach predicted outflows could continue, arguing that some investors could simply be waiting for him to set up a new fund, or craft a subadvisory arrangement with an existing fund, before moving to reunite with his team. DoubleLine's future doesn't depend on winning a mandate to manage the TCW Total Return Bond fund, but “from a TCW business perspective,” hiring his firm as a subadviser would make sense, he said.

    One lawyer, who declined to be named, said the board's decisions are unlikely to be questioned if the fund manages to stabilize with enough client assets to continue enjoying economies of scale. But if the board members see no end in sight to the outflows, at some point they might be forced to reconsider their options, said the lawyer, who termed the current environment an extremely “unhappy” one for the board. The lawyer, whose firm represents neither TCW nor DoubleLine, said with the fund at more than $6 billion, the board probably isn't sweating just yet, but if it's at $2 billion in a few weeks, that could change.

    It's virtually never the case that a manager is fired by a board, and it's difficult to say when turmoil at a fund — such as a wave of redemptions — would reach a point where a board could not reasonably be judged to have met its duty of care, said Joshua Deringer, an attorney with Philadelphia-based Drinker Biddle & Reath LLP.

    Related Articles
    TCW dumps Gundlach, buys MetWest Asset
    TCW's $100 billion problem
    TCW plays 'let's make a deal'
    Why I followed Jeffrey Gundlach to DoubleLine
    TCW's claims against DoubleLine Funds Trust dismissed
    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Targeting millennials: Author, niece put his latest book to music
    Targeting millennials: Author, niece put his latest book to music
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center