Departures newest issue for TCW Group

Recent turmoil at the top of bond giant TCW Group Inc. is just the latest in a series of storms buffeting the $266 billion manager.

TCW announced in late August that Tad Rivelle, CIO of fixed income, would retire at the end of the year. Also announced was that the contract of President and CEO David Lippman is set to expire at the end of 2022. TCW said it hasn't been decided whether the contract will be renewed, but sources said Mr. Lippman is expected to leave when it expires.

TCW also has been struck by a July 2020 cybersecurity breach on some of TCW's computer systems, a high-profile gender discrimination and sexual harassment suit by a former managing director against the firm, Mr. Lippman and a former executive; and uneven investment returns of its flagship bond fund.

TCW acknowledged that Mr. Rivelle's departure at the end of this year had not been planned in advance.

"While Tad's retirement was a recent development, we have a team-based portfolio management structure that includes longstanding mechanisms to deal with succession," said TCW spokesman Doug Morris in an email.

Yet despite the controversy, TCW Group's assets under management are at an all-time high of $266 billion, thanks to flows into its fixed-income and emerging markets strategies, according to TCW. That's up from $248 billion in 2020 and $217 billion in 2019.

The firm's emerging market assets totaled $17.5 billion as of June 30, up from $16 billion a year earlier.

About 90% of TCW's total AUM is in fixed income, according to a TCW presentation to one of its clients, the $10.3 billion San Diego City Employees' Retirement System.

But despite the asset gains, returns of TCW's flagship fund, the $91 billion TCW MetWest Total Return Bond Fund, underperformed the benchmark used by Morningstar Inc., the Bloomberg U.S. Universal Total Return Index, in all but the 10-year periods ended Aug. 31. However, TCW benchmarks the fund to the Bloomberg U.S. Aggregate Bond Index and the total return bond fund outperformed its benchmark in all time periods ended Aug. 31.

While Morningstar ranked TCW MetWest Total Return fund in the top quartile for the 15-year period ended Aug. 31 with a 5.37% return, rankings dropped to the second quartile for the 10-year period and third quartile for the five years.

TCW's overall Morningstar rating is 3.33, meaning that TCW funds tend to be average to above average relative to peers.

Sources attribute the drop in performance to too much of a good thing. The departure of William H. Gross from rival money manager Pacific Investment Management Co. in September 2014 resulted in a bonanza of assets moving into TCW's MetWest fund, Pensions & Investments reported at the time.

The TCW MetWest Total Return Bond Fund had more than $35 billion in net inflows between Oct. 1, 2014, and March 31, 2015, while PIMCO had more than $100 billion in net outflows during the same period, P&I reported. TCW had $181 billion in AUM in 2015 and grew steadily until 2018, when AUM dipped to $191 billion from $205 billion.

TCW will face the future with fewer senior members on its generalist fixed-income portfolio management team. When Mr. Rivelle leaves TCW, the generalist group will be down to three executives: Mr. Landmann, Steve Kane and Bryan Whalen.

TCW does not have immediate plans to add a senior executive to the group, which has had just three members in the past, Mr. Morris, the spokesman said.

Recent letters to TCW employees and clients signed by the three team members said that Mr. Rivelle's pending departure was a development they "have been preparing for some time to ensure long-term consistency in the trusted oversight of our client portfolios."

The letter noted TCW "is not reliant so much on individuals, but rather on the discipline of the talented team" for its stability and growth. The vote of each member carries equal weighting on portfolio matters, Mr. Morris said.

When it comes to the overall company, however, control is split among three groups, with no group holding a controlling interest: private equity shop The Carlyle Group Inc., Japan's Nippon Life Insurance Co. and TCW executives and employees. Nippon Life acquired a 24.75% stake in TCW from Carlyle in 2017. TCW employees own a bit more than 44.07% and Carlyle holds a 31% interest.

Carlyle declined to comment. Nippon Life in a written statement to P&I said the personnel changes at TCW were determined appropriately by TCW and it does not affect its investment in TCW.

"We believe the firm is handling the transition of CIO and the team in a seamless manner in order to make no changes to the current direction," Nippon Life said.

Following the announcement of Mr. Rivelle's departure, TCW executives say clients are taking the changes in stride.

Executives of the San Diego City fund do not think the changes will affect the pension fund's investments with TCW, CIO Liza Crisafi said.

Ms. Crisafi said she expects that staff, with input from its general investment consultant Aon, will place TCW on its "monitoring report" for the November board meeting due to the organizational changes.

Aon has been in contact with TCW and so far has not raised any objections, Ms. Crisafi said.

TCW strategies accounted for 35.2% of SDCERS' $1.8 billion fixed-income portfolio as of June 30.

The July 2020 cybersecurity breach that affected some of TCW's computer systems had no impact on client assets, TCW executives say.

"All assets managed by TCW are held by third-party bank custodians, and those custodians were unaffected by this issue, so no client assets were impacted," Mr. Morris said. "This incident did not result in any client or other data being exfiltrated."

Since then, TCW has taken a number of steps to shore up its cyber defenses, Mr. Morris said. And in a Securities and Exchange Commission filing, the firm said it regularly reviews its systems to protect against cybersecurity incidents.

The firm has "committed significant resources to further enhance our security program to help prevent similar incidents from happening in the future," Mr. Morris added.

Meanwhile, the high-profile lawsuit alleging gender discrimination and sexual harassment by Sara Tirschwell, former TCW distressed debt manager, could be headed for trial next year.

Ms. Tirschwell filed the lawsuit in January 2018 against TCW, Mr. Lippman and Jess Ravich, who was then her direct supervisor at TCW. Ms. Tirschwell alleges she was fired in December 2017 after she had lodged a sexual harassment complaint with TCW against Mr. Ravich, then group managing director and head of alternative products.

TCW has maintained in court filings and in written statements that Ms. Tirschwell's allegations are "without merit." Messrs. Ravich and Lippman have also denied the allegations.

"Ms. Tirschwell was properly terminated as a result of repeated compliance violations," TCW said in a statement to P&I in May 2021.

Mr. Ravich left TCW in 2019. He has not yet been replaced.