Comments on: Those surprisingly small TCW redemptions A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: najdorf Fri, 11 Dec 2009 16:20:14 +0000 Given that only $12 billion of the money Gundlach was running was in the mutual fund (TGMNX/TGLMX), $2 billion in withdrawals is pretty significant to the company. They also got smacked by the Treasury and may lose that business. No standard institutional investor is going to reallocate money in less than a week, and those that do want to move money might well cut deals with TCW not to express their concerns publicly. Of course it’s also in their interest to keep quiet to make sure they get their cash promptly.

Given that the mutual funds were ~65% in government-backed securities, it’s unsurprising that $2 billion in redemptions failed to move a multi-trillion dollar market. As to the supposed illiquidity of the riskier end of the portfolio, banks have been using illiquidity as an excuse for their insolvency since the beginning of the crisis and it remains just as false. There’s a price for any security you can name, because there are simply too many arbs and nerds out there for there to be any market in which the world collectively throws up its hands and says “Dunno what it’s worth”. That price may not be as high as the long-term holders of bad paper would like, but Gundlach bought all these securities at a low price and TCW could sell them at a higher price today. Banks just pretend they’re illiquid because they’d rather mark the paper at 80 cents on the dollar than take the market quote of 70 or less. Maybe we’ll successfully inflate/earn our way out of this and they’ll be right, but paper that you might have to sell any day to remain solvent/meet cash demands is worth what the market will pay you for it. I really hope for their sake that TCW has been marking their paper honestly when the institutional redemptions start coming in.

But I agree with you that this won’t have any bond market impact since TCW isn’t big enough. It will hurt their company because they have lost not just Gundlach but an excellent team around him that were highly successful at gathering and managing assets. It’s also pretty damaging to the company’s reputation as a fiduciary that they will make a huge adjustment on a Friday afternoon without consulting or warning shareholders. I’ll never invest with them again, and I had been adding to the fund since I found out about it earlier this year.