Many firms in the bond world have staid reputations, but TCW Group Inc. is anything but dull.
In just the past few months, the downtown L.A. investment firm, which has more than $100 billion under management, has endured the exodus of dozens of employees and the outflow of billions of dollars in investment capital after firing star fund manager Jeffrey Gundlach. TCW also acquired crosstown rival Metropolitan West Asset Management, a $30 billion bond firm, in a blockbuster acquisition.
“The period of December and January could be described as tumultuous, no doubt about that,” said Tad Rivelle, who took over as TCW’s chief investment officer in December.
Already, though, things are getting back to normal at the bond giant. The staff integration is complete and fund assets are on the rise, said Rivelle, who co-founded MetWest in 1996 and now heads some of TCW’s highest-profile funds, including the flagship Total Return Bond Fund.
With investors increasingly turning away from the volatile equity markets, fixed-income funds are benefiting.
“There has been massive inflow into bond funds,” Rivelle said.
Indeed, TCW now manages $71 billion in fixed-income assets, the third largest total among L.A.-based firms, up from $57 billion at the end of last year.
TCW also has seen strong performance in its funds. With annualized returns of 9.56 percent, its Emerging Markets Bond Fund is the third best performing of 4,556 fixed-income funds over the past five years, according to research firm Morningstar Inc. The Total Return fund, meanwhile, is the 25th best performer during that stretch, with annualized returns of 7.58 percent.
Whether the returns can be maintained remains to be seen, as both of the funds’ managers left during the recent upheaval. Gundlach had managed the Total Return fund, while the Emerging Markets fund was helmed by Luz Padilla, who exited TCW voluntarily after Gundlach’s ouster.
TCW wasn’t always such a player.
Founded in 1971 by Robert Day, the firm – then known as Trust Co. of the West – started out with a heavy stock focus. In the 1980s, in an effort to expand and emulate Wall Street firms, TCW brought on a number of bright young bond minds, including Gundlach and junk bond investor Howard Marks.
The firm favored a system by which individual managers had total freedom over a fund’s investments. This allowed talented managers to thrive – and build their reputations – but left TCW vulnerable in the event of defections. Marks, in fact, left in 1995 to help start Oaktree Capital Management, a downtown L.A. firm that now has $76 billion under management.
Meanwhile, Gundlach remained at TCW, where his penchant for mortgage-bonds earned him a reputation as a top-shelf manager. In 2006, he won the Fixed Income Manager of the Year award from Morningstar for the superior performance of his Total Return fund. By 2009, he managed roughly $70 billion for TCW’s clients.
But relations between Gundlach and his longtime employer soured. He was reportedly upset with TCW’s management and with the unwillingness of the firm’s parent, French bank Société Générale, to sell TCW to him. TCW, fearing that he would quit and take his team with him, acted preemptively and fired Gundlach, shocking the bond world. Gundlach has since launched his own firm, DoubleLine Capital.
The fallout was major: By February, clients had pulled a reported $25 billion from TCW.
The firm, though, scored something of a coup in snagging Rivelle to fill Gundlach’s shoes. Rivelle, who has worked at some of the area’s largest bond firms, and has earned degrees from UCLA, USC and Yale. He also is a recent recipient of Morningstar’s top bond manager award. The addition of MetWest also has helped TCW’s weather a difficult storm.
“There was certainly a loss of assets from some of the existing TCW fixed-income relationships,” Rivelle said, “but that loss of assets was significantly less than the new assets that were brought to the firm through the merger of MetWest.”
TCW Group Inc.
Fixed Income Assets: $57.2 billion
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