TCW Group dropped out of the Treasury Department's Public-Private Investment Partnership program and will return the roughly $500 million raised from investors for the investment fund, the company announced.
“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,” said Marc I. Stern, TCW CEO, in the news release.
TCW-managed PPIP funds were frozen under a key-man clause in the its contract with Treasury following the company's Dec. 4 announcement that it had ousted Jeffrey E. Gundlach as chief investment officer and lead portfolio manager of TCW's high-grade fixed-income funds and accounts.
In a separate statement today, Andrew Williams, a Treasury spokesman, said that because “certain key investment professionals” had left TCW, the Treasury Department, the fund's private investors and TCW had agreed to liquidate the TCW PPIP fund.
“Treasury was careful to ensure the legal documents that implemented PPIP contained many provisions designed to protect taxpayers' investments,” Mr. Williams said in the statement. “One of these grants Treasury additional rights if certain key professionals leave the firm.”
Erin Freeman, a TCW spokeswoman, said company officials weren't commenting further.
In a related matter, Illinois State Universities Retirement System, Champaign, on Feb. 4 likely will discuss how to replace TCW, which was one of four managers it hired to run $40 million each in the Treasury's PPIP program.
Tony J. Lee, the $12 billion system's investment officer, said its investment committee plans to review its fixed-income managers with consultant Ennis Knupp. He said he wasn't authorized to comment on TCW. SURS CIO Daniel L. Allen was out of the office and couldn't be reached.
TCW was hired as a PPIP manager in November along with Angelo Gordon/GE Capital Real Estate and RLJ/Western Asset Management; a fourth manager, Oaktree Capital Management, was hired in December.
Ennis Knupp, in its recommendations to the SURS board on TCW in October, identified a “key person risk” in Mr. Gundlach, stating he was “essential to the success” of the TCW Special Mortgage Credit Fund III and stating the SMC fund's “key-man clause is triggered if or when Mr. Gundlach ceases his investment duties.” Ennis Knupp expected the TCW's PPIP fund for SURS to use similar TCW expertise and portfolio construction as the SMC fund, the memo said.
Ennis Knupp also noted in its memo, “TCW has the deepest (residential mortgage-back securities) investment team.”
SURS expects the investment commitments to its PPIP managers to be funded over three years.