Ex-TCW exec: Track record is another hurdle

Embroiled in a high-profile lawsuit against TCW Group Inc. over allegations of gender discrimination and sexual harassment, former distressed debt manager Sara Tirschwell says long-standing practices among investment firms limit executives who aspire to strike out on their own.

Those constraints, she said, effectively bar investment executives from taking their track records with them — to find jobs or to start their own firms — and demonstrating their accomplishments to potential investors.

Legal experts say that's because the track record belongs to the firm; it is up to the manager to decide whether or under what circumstances departing executives can use their portion of the track record.

To be sure, such constraints affect all investment executives, not just women. But for women and minorities, it can be something of a Catch-22 — they often lack the seniority to negotiate the use of such records, and track records are required by most institutional investors to award mandates. Without a portable track record, Ms. Tirschwell joined TCW in 2016 after an earlier effort to strike out on her own fizzled.

"The issue of the track record is a really important issue," Ms. Tirschwell said in a recent interview with Pensions & Investments. "The big name brand firms won't let anybody take their track records. Pension funds have got to be willing to take that risk" to invest with new firms owned by women and minority investment executives who cannot present an audited track record from their prior firms for this reason, said Ms. Tirschwell, a former managing director of TCW's distressed debt strategy group.

If institutional investors continue to invest mostly with the big, brand-name alternative investment firms, she said, they will have more correlated returns. That's not necessarily a problem until they are not all doing well.

In Ms. Tirschwell's lawsuit, filed in January 2018 against TCW, Jess Ravich, her former direct supervisor at TCW, and David Lippman, TCW president and CEO, 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.

The complaint, filed in state court in New York, seeks at least $30 million and punitive damages for unlawfully terminating her, breaching her employment contract and violating the New York City Human Rights Law, which bars discrimination on the basis of gender.

TCW, with $253 billion in assets under management as of March 31, has maintained in court filings and in written statements that Ms. Tirschwell's allegations are "without merit."

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

"TCW is proud of its inclusive culture and has a zero tolerance policy for any form of predatory behavior," TCW said in a statement soon after Ms. Tirschwell filed her complaint. TCW added that with regard to Ms. Tirschwell's allegations, the firm had engaged an independent investigative firm to examine the allegations and determine the facts.

In 2018, TCW wound down the roughly $50 million distressed debt fund that Ms. Tirschwell had run, according to two letters to investors at the time. Her departure triggered a key-person event that gave investors the right to request a redemption.

A trial date on the lawsuit has yet to be scheduled.

A track record is an investment professional's calling card. It reflects the particular investments the person was involved with and the results of the investment, industry insiders say. A verifiable track record is indispensable for anyone wishing to start a money management firm, industry executives say.

"It is important that new (general partners) have a track record that is clearly attributable to them," said Allan Majotra, managing partner, Americas, Europe, the Middle East and Asia, at placement agent 5Capital Funds Placement LLC, speaking generally about emerging managers, in an email. "What is most important for us is (the team's) track record or a very high conviction from our side that they will be a first-quartile fund in the future," he said.

But isolating a single person's track record can be difficult. There is often more than one portfolio manager on a fund and a single investment can involve multiple teams at an alternative investment firm, industry insiders say. Sometimes, very senior executives such as investment committee members, can negotiate the use of their track records when they are hired or when they leave, but more junior executives may have to leave without one. What's more, junior as well as senior executives could be barred for a limited time, typically up to a year, from reaching out to limited partners with whom they have relationships.

None of the 52 female executives surveyed for a 2020 Investec report said they would start their own private equity firm if they left their current employer, down from 2.3% in the prior year report. By comparison, 15% of men said that they would start their own firm, the report stated.

The report noted that starting a private equity firm is the quickest route to the leadership ranks of asset management, but women aren't considering it because successfully forming a new private equity firm "requires a significant track record and a certain level of seniority that women are still less likely to have achieved."

According to Preqin's Women in Alternative Assets 2021 report, even though 20.3% of employees at private equity and venture capital firms were women at the end of 2020, few female executives have advanced to senior levels. Only 12.2% of senior private equity executives and 13.7% of senior venture capital executives were women, Preqin data showed.

Before joining TCW Group, Ms. Tirschwell said that she and former Paulson & Co. executive Dan Kamensky had planned to open their own distressed debt firm, with Ms. Tirschwell as the lead partner.

Her former employer, Davidson Kempner Capital Management LP, with whom she said she had a good relationship as a managing director in distressed debt, does not permit portability of track records for anyone, Ms. Tirschwell said.

A chance meeting in early 2015 with a Davidson Kempner investor, Aurora Investment Management LLC, a hedge fund-of-fund manager, eventually led Aurora to agree to provide her with seed capital for her new firm, she said.

"One of the only reasons why I was able to raise $175 million from Aurora was because Aurora had been an investor in Davidson Kempner. They knew about me as an investor and … Davidson Kempner talked to Aurora on my behalf."

David Kempner declined to comment.

Her plans to form a firm, however, went awry.

Aurora pulled its investment, Ms. Tirschwell said. In April 2016, Aurora went out of business. When the seed money evaporated, Mr. Kamensky dropped out of the venture, she said.

According to court documents, Ms. Tirschwell was introduced to TCW by Mr. Ravich. She joined TCW in May 2016, initially as an independent contractor in which she would both manage and own a 51% interest in a new distressed investing fund, according to the trial court's summary of the facts. TCW would own 49%, court documents show.

TCW executives said she would have access to TCW's "world class" back office, marketing and legal services as well as other support, she said.

She became a TCW employee in the summer of 2016 with Mr. Ravich as her supervisor. According to court documents, Ms. Tirschwell and Mr. Ravich have known each other since 1994. They dated in 2012 for approximately a year and remained friendly, court documents show.

But the lack of a track record also hurt her attempts to raise capital for her new fund when she was at TCW, she said.

Salespeople refused to pitch her fund, even to asset owners with whom she already had a long-standing relationship from her 11 years at Davidson Kempner because she couldn't produce a track record, she said. At the same time, even before she joined TCW as an employee she failed to qualify for pension funds' emerging manager programs because TCW was backing her, which made the distressed fund more difficult to raise, Ms. Tirschwell said.

TCW directed requests for comment to documents it has filed in the lawsuit.

In an affidavit in support of Mr. Lippman and TCW's 2019 motion for summary judgment, Joseph Carieri, TCW's Los Angeles-based head of marketing, said he told a group of executives including Mr. Lippman at the outset of Ms. Tirschwell's relationship with TCW that marketing her fund wouldn't be easy.

"I expressed ... my belief that it would be very difficult to market an investment product without a track record or an established team," he said. Mr. Carieri also said it was "untrue" that TCW failed to support Ms. Tirschwell's efforts to market the distressed fund.

Ms. Tirschwell made more than 140 presentations and/or meetings with prospective clients and was accompanied by another TCW employee "for almost all these presentations," he said.

TCW also marketed the fund to friends and family in late 2016, and between March 1, 2017, and November 2017, TCW made about 400 solicitations to 100 potential investors, Mr. Carieri said.

In May, an appellate court in New York reinstated a retaliation claim Ms. Tirschwell had brought against TCW and Mr. Lippman and her request for punitive damages. The appellate court also ruled that the lower court had properly let stand Ms. Tirschwell's gender discrimination claim against Mr. Ravich, based "on plaintiff's claims that Ravich used his supervisory position to pressure her into having sex with him and withdrew support for her at work after she stopped responding to his sexual advances."

Since she left TCW in 2017, Ms. Tirschwell said that she has not worked managing money. Potential employers tell her that they think she is a talented investor but do not want to hire her until her case against TCW is over, she said.

This year, Ms. Tirschwell ran as a Republican candidate for mayor of New York but dropped out in April because she had not collected enough signatures to get on the ballot.

She also is a managing director of turnaround advisory firm Quest Turnaround Advisors, and chief financial officer of Foundation House, an addiction treatment services provider founded to honor the life of Peter Kellerman, a partner at Cantor Fitzgerald who was killed on 9/11.

Ms. Tirschwell said the distressed investment industry was more diverse when she started working in money management close to 30 years ago. The business was left to "the nerds," she said.

"It attracted the misfits of Wall Street. People who couldn't get jobs being white-shoe investment bankers," Ms. Tirschwell said. "Because it was a misfit crowd, it attracted a disproportionate number of women."

The smaller number of women manager executives today will not change until asset owners insist that managers promote more women and minorities into senior investment roles and support those who strike out on their own with larger emerging manager programs, Ms. Tirschwell said. They should also loosen up on the track record requirement, she said.

Another obstacle for anyone attempting to start a new alternative investment firm is most asset owners' emerging manager programs are too small, even though more pension funds are starting programs than ever, she said.

"How do you compete with managers with funds with hundreds of millions or billions of dollars?" she said. "Pension funds talk about diversity and … helping women and minorities and giving them a leg up ... but if you look at the amount of money they allocate to those emerging manager programs, (it is) quite small."