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U.S. Treasury suspends $1-billion TCW fund for toxic assets

The move comes after the firing of Jeffrey Gundlach, the firm's chief investment officer who was to lead the team managing the fund.

December 09, 2009|By Tom Petruno

The bitter split between Los Angeles money manager TCW Group and its chief investment officer, Jeffrey Gundlach, has caused the U.S. Treasury to suspend a $1-billion fund TCW recently raised to buy toxic assets from banks.

Gundlach, who was fired by TCW on Friday, was to have led the team managing the fund under the Treasury's Public-Private Investment Program.

With Gundlach's departure, the government has the right to put the fund on hold while it requests information about who at TCW now will be in charge of the money raised.

A Treasury spokeswoman said the government was "currently evaluating its options as an equity and debt investor" in the TCW fund.

TCW said it was "working to ensure we meet [the Treasury's] contractual due-diligence requirements."

Gundlach, 50, was TCW's star fund manager, racking up strong returns over the last decade in complex mortgage-backed bonds.

TCW, which manages a total of $110 billion for institutions and individual investors, on Friday fired Gundlach and simultaneously bought rival L.A. money manager Metropolitan West Asset Management to replace him and his team, many of whom left with him.

TCW said it sacked Gundlach because he was threatening to leave. Gundlach said he was "inappropriately" ousted.

His departure triggered heavy redemptions Monday from TCW's flagship mutual fund, TCW Total Return Bond, by investors who were stunned by his sudden exit.

Redemptions continued Tuesday but slowed to less than half of Monday's pace of $1.2 billion, said Tad Rivelle, the Met West executive who replaced Gundlach as TCW's investment chief. The fund held $12 billion in assets last week.

Rivelle said the fund on Tuesday easily sold government-backed mortgage bonds as well as $450 million of nongovernment-backed mortgage debt to meet redemptions.

The sales didn't hurt investors who've stayed: The per-share net asset value of the fund rose 3 cents to $10.25 for the day, which indicates TCW was able to sell bonds for as much or more than their value on the fund's books.

Meanwhile, Gundlach on Tuesday held a conference call with former and prospective investors. He said he expected to be managing portfolios again within "30 to 45 days," either via a start-up firm or in partnership with another firm. He said a bond mutual fund that would be available to individuals was "absolutely" in his plans.

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