How Jeffrey Gundlach treats his clients

By Felix Salmon
January 8, 2010
TCW's lawsuit against Jeffrey Gundlach -- Dealbreaker has the whole thing here -- is nominally asking for lots of money. Of course it is. But I suspect that at heart it's a strong message to all of those clients who haven't (yet) left TCW for Gundlach's new shop. Gundlach is a conniving diva, it says, who not only is willing to break his fiduciary duties if he thinks that's in his own interest, but is also more than happy to leave his clients in the lurch as well.

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TCW’s lawsuit against Jeffrey Gundlach — Dealbreaker has the whole thing here — is nominally asking for lots of money. Of course it is. But I suspect that at heart it’s a strong message to all of those clients who haven’t (yet) left TCW for Gundlach’s new shop. Gundlach is a conniving diva, it says, who not only is willing to break his fiduciary duties if he thinks that’s in his own interest, but is also more than happy to leave his clients in the lurch as well.

I have no idea whether the allegations of law-breaking are true, although they’re both detailed and plausible. But the fate of Gundlach’s former clients is clear. Gundlach abandoned them for a new shop with no track record: even the fastest-moving institutional investor will take a long time to do its due diligence on DoubleLine, and will surely take even longer given the allegations in this lawsuit. And Gundlach’s destructive war with TCW shows that he wishes nothing but harm for TCW — and, by implication, anybody who stays with TCW in the wake of his departure.

Now that Gundlach has left TCW, a lot of TCW’s clients will be thinking about leaving. But I suspect Gundlach might have overestimated the proportion of TCW’s redemptions which will end up at DoubleLine. Bond investors are conservative folks, and Gundlach’s former clients at TCW are unlikely to want to run the risk of being treated in a similar manner again — especially if the allegations about Gundlach stealing attorney-privileged client information are true.

Comments
3 comments so far

Felix, you ought to be more skeptical about believing the allegations in an unanswered civil complaint. You say a few times that you don’t know whether they’re true, but then your post basically assumes that TCW’s version is valid. TCW is bringing this complaint to intimidate, to try to hold on to clients, and to punish Gundlach for leaving. It’s impossible to know if any of the claims are true until you see the hard evidence, which is why we have a trial process.

I don’t know at this point how you can blame the war on Gundlach – the company fired him after one of his most successful years on a Friday afternoon effective immediately. What did you think he was going to do, write them a letter of apology and recommend that his former clients stick with a company that only developed a reputation for quality based on his work? I don’t think we would have reached the current position unless BOTH sides made some errors of judgment and cared more about their own egos than the shareholders. As a result I won’t be investing with TCW or Doubleline in the future (I had held the TCW fund).

Taking TCW’s side of this before hearing Gundlach’s answer and suggesting that bond investors should stick with a company that had to fire its star manager (who took most of the rest of the staff with him) is a pretty absurd piece of corporate pandering. There are lots of other people who can manage bonds and aren’t embroiled in this sort of ridiculous controversy that distracts from fiduciary responsibilities.

Posted by najdorf | Report as abusive

Man, they’re really throwing everything including the kitchen sink at him. Check out the section on “inappropriate contraband”.

Posted by GingerYellow | Report as abusive

Nonsense. TCW probably underestimated Gundlach’s popularity with clients and their willingness to follow him. It was foolish for them to fire their best manager. I’ve pulled my own and clients’ money out of TCW – the redemptions have been enormous – and eagerly await the availablity of Gundlach’s new funds.

Posted by DennisAOK | Report as abusive
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