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If It's "Too Good To Be True" ... Gundlach Found Out The Rest The Pink Slip Way: His Last Report At TCW
Zero Hedge has come across what could well be Jeff Gundlach's swan song as TCW. While we are still investigating the curious circumstances surrounding Gundlach's unceremonious firing, and subsequent departure of his closest lieutenants, we leave readers with this last masterpiece from the mortgage bond expert while still a TCW employee.
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he probably told the truth about something and got
his ass fired....
wow, he knows his stuff, and has a twisted sense of humor. he would make an excellent ZH contributor
I'm guessing if he had been, TD might know about it... Though that is an explanation for his (and his team's) departure that I had not thought of. ;-)
Looks like truth got in the way and/or he let his hopium prescription lapse.
LA Times has an article on the subject. One rumor, the parent company (SocGen) decided to cut cost - head count , :) TCW itself could be on the block if they find a good suitor.
Going down in a glorious blaze of truth.
I wonder if this was presented in a meeting or simply an emailed report. It must have been a real jaw dropper around the office. (And now around the world.)
Way to go!
It was presented in a conference call around September 15. The webcast was available until recently but TCW has pulled down all letters and presentations from Gundlach from its website.
What do you think TCW is worth without Gundlach? They wanted to avoid the firm blowing up by having him (and his team) walk.....so rather like Wylie Coyote they pushed the TNT plunger themselves....
That's exactly right. Gundlach had a great track record that made him TCW's biggest asset and he knew it. His group was managing about 60% of TCW's assets. TCW is owned by SocGen and there had been stories that they were looking to monetize it (I wonder why, it's not like European banks are in bad shape or anything) by either selling it or via an IPO. Gundlach made a comment that if there were any serious potential buyers he thought they would talk to him since he managed such a big chunk of TCW's assets; i.e. if you bought TCW without locking him up you might find out a lot of the assets under management you paid for would walk out the door with Gundlach.
Gundlach made an offer in September to buy TCW for $700 million, which seems like a low offer to me for a firm with assets under management of roughly $110 billion. That's about 0.6% of AUM. I haven't looked at any publicly traded asset managers in a long time but they used to trade at perhaps 2-3% of AUM. But the publicly traded asset management firms don't have as much of their value tied to one person.
Gundlach has said his dismissal was a cost cutting move, which suggests to me that he must have been negotiating for a much bigger pay package for himself and his team. The principals at Met West owned their firm which had $30 billion under management, so I doubt they came cheap.
I think under the circumstances SocGen's move probably makes sense. If Gundlach and his team had walked without TCW having a credible replacement in place they could have kissed their fixed income business goodbye. That was most of the value of the firm.
I wasn't aware until I read it somewhere yesterday that something like this has happened to TCW before. Howard Marks and his team at Oaktree were at TCW and split off in the mid 90's.
It's contained.
Looks like RoBoTrader with more colored pics, but sadly without his usual visual dis(at)tractions
Is there a real need for more bond, equity and hedge funds than there are instruments to trade?
If ZH and others here look at Gundlach's presentation and think he is a brilliant guy (as I do), it's worth noting that he has built a great track record investing almost exclusively in MBS, which is often referred to here as "worthless garbage". He makes the point that there is a huge variety of securities with different risk/return characteristics even within the agency MBS space and that is mostly what he has exploited over the years. In 2008 after the collapse of private label MBS he became a big buyer of them for the first time.
As of the last webcast presentation he gave for TCW, about a month after the one that is linked here (for a smaller closed end fund he managed), he was bullish on the intermediate to longer term return prospects for his portfolios even with his extremely bearish view of the economy and the stock market. Gundlach bought private label MBS that were originally rated AAA (after the prices collapsed) and said while the ratings were virtually all headed for D (default, which is what a mortgage backed security gets rated when it returns even $.99 on the dollar) the prices more than discounted it. He bought almost no subprime, all prime and Alt-A, and built in extremely high default rate and severity assumptions when determining what he was willing to pay.
For any who would dismiss him as a perma-bear, he gave a presentation in March near the market lows titled "You're Too Bearish", which predicted a big rally in equities and other risk assets such as junk bonds. But he said it would be a cyclical rally within a secular bear market.
His outlook as of mid October was for a big rally in the dollar and a corresponding steep decline in equities. He also thought corporate investment grade and junk debt were both unattractive because spreads had become far too tight versus treasuries. He is in the deflation camp, thinks inflation is too far off to position portfolios for it. He thinks dollars are effectively being destroyed by defaults faster than the Fed is printing them.
My view exactly.
TCW also raised a few billion for a PPIP fund that included a 5 or 7 year lock up. Gundlach was obviously a part of it as the CIO of the firm. I do not know if he was specifically listed as a key man on the product.
Regardless, how pissed are consultants that put clients into this fund, locked them up for 7 years, only to have the CIO walk.
Next question: What will Gundlach do? Start his own firm? Team up with a credit hedge fund looking for a big name? Or will he say in mutual fund land where the compliance it tighter and the fees are lower? No matter where he goes, he will bring a pretty sizable piece of the AUM that is sitting at TCW waiting to see what happens.
An L.A. Times article today quotes Gundlach as leaning toward starting a new firm, though he hasn't made a final decision.
TCW's flagship Total Return Bond Fund had about $1 billion in redemptions yesterday, roughly 8% of assets.
Those who reach conciousness. Their last day on the job is always thier finest work.
Beautiful. Just beautiful.