TCW Group Inc. said investors with $1.3 billion in assets will liquidate their holdings in two distressed-mortgage funds after the ouster of Jeffrey Gundlach as chief investment officer.

Investors with $1.7 billion in assets are staying in Special Mortgage Credits Funds I and II, which previously had $3 billion in assets, Erin Freeman, a spokeswoman for the Los Angeles-based TCW, said Monday in an interview. That represents 199 of 330 investors in the funds, she said. Clients had the choice to stay or liquidate their stakes by the Feb. 19 deadline after the firing of Gundlach on Dec. 4 triggered a so-called key-man provision.

TCW, a unit of French bank Societe Generale SA, is cutting fees and making concessions for investors in its funds after its dismissal of Gundlach prompted about 45 members of the firm’s fixed-income team to follow him to his new firm. TCW slashed management fees on the two credit funds this month to 1 percent from 2 percent and the share of profits, or carried interest, to 5 percent from 20 percent to induce investors to stay. The funds, started by Gundlach at the onset of the credit crisis, invest in mortgage securities that have fallen in value.

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