TCW Asset Management has given investors in its Special Mortgage Credits Fund I and II until Feb. 19 to decide whether to liquidate their investments.
The Dec. 4 termination of Jeffrey E. Gundlach, TCW's former chief investment officer for fixed income, triggered the limited partnership funds' key-man provision. Mr. Gundlach and his team managed both funds, institutional-only commingled funds with a combined $3 billion.
TCW was required by the terms of the limited partnerships' documents to select a new manager for the funds within 90 days after Mr. Gundlach's departure. The funds will be invested by specialist mortgage portfolio managers from TCW and Metropolitan West Asset Management, which TCW is in the process of acquiring, according to a Jan. 25 letter obtained by Pensions & Investments that TCW sent to the more than 200 limited partners of the funds.
TCW is offering big fee concessions to investors that decide to remain in the funds. The management fee will be reduced to 1% from 2%, and the performance fee cut to 5% from 20% for the remaining term of the funds, which have a private-equitylike structure,
According to a limited partner who insisted on anonymity, investors in the Special Mortgage Credits funds are blue-chip pension fund, endowment and foundation investors that include the University of Virginia, Ford Foundation, United Technologies and Kresge Foundation. Mr. Gundlach also is a limited partner of the funds.
The letter reminded investors that the funds' agreements permit TCW to manage the fund for its entire term — until July 2015 — after a “key person event” with a 2% management fee and a 20% performance fee. Instead, the letter said TCW decided “to offer fund investors more flexibility in this circumstance” with two ways to remain in the funds in addition to the total liquidation choice. Both options to stay offer reduced fees, shortened investment terms and the ability to liquidate after 18 months. The first option allows the funds' managers to make new investments; the second will not make new investments.
TCW spokeswoman Erin Freeman declined to comment.