Carlyle Group leads buyout of TCW from Societe Generale
After three years clouded by key staff defections and ownership uncertainties, Los Angeles asset manager TCW Group Inc. will move ahead with a high-profile new partner — private equity firm Carlyle Group.
French banking giant Societe Generale agreed Thursday to sell its majority stake in TCW to two Carlyle funds and to TCW’s managers. Terms of the deal were not disclosed, but the companies said the transaction would boost the ownership of TCW employees from 17% to 40%.
TCW, founded in 1971 by Robert Day as Trust Co. of the West, manages investments for some of the nation’s largest pension funds, universities and other big investors. Day is the grandson of California oil baron William Myron Keck, who founded Superior Oil Co., a Coalinga, Calif., company that is now part ofExxon Mobil Corp.
As part of the partner pact withWashington, D.C.-based Carlyle, the managers of 90% of its assets have signed new five-year contracts, said TCW Chief Executive Marc Stern, who will become chairman of the reconfigured company.
“This is very, very stabilizing,” Stern said, describing how TCW had discussed doing the deal with several private equity firms.
“Carlyle was clearly the best partner because of its philosophy — not only letting management run the business but encouraging management to run the business,” Stern said in a telephone interview.
The deal gives TCW a new start three years after Stern fired his investment chief and star bond trader, Jeffrey Gundlach. In a twist, Gundlach’s firing was triggered by his demands that the owners grant employees more ownership in the firm, something the Carlyle deal has now accomplished.
Gundlach formed his own company, DoubleLine Capital, where more than 40 of his TCW staffers soon joined him. TCW, which had $110 million in assets under management before Gundlach’s firing, saw those assets shrink by $10 billion in 2009 and an additional $25 billion in early 2010.
TCW bought Metropolitan West Asset Management, a prominent Westside firm that oversaw $30 billion in assets, to fill the gap. Met West’s bond-fund managers have attracted tens of billions of dollars in new funds, and the company now says it is managing $130 billion in assets.
Its dispute with Gundlach ended badly for TCW after a bitterly fought trial at which the company accused Gundlach of stealing trade secrets. The jury awarded TCW no damages and found that it owed Gundlach and three codefendants $66.7 million in back wages. The parties reached a settlement on undisclosed terms in December.
Societe Generale, which had been TCW’s parent since 2001, had been signaling for months that it would unload TCW, and in June wrote down its investment in the firm by 200 million euros. It said it sold TCW to raise capital to help meet rising regulatory standards imposed after the global financial crisis.
The stability provided by the deal with Carlyle is likely to make it easier for TCW to attract more institutional funds, said Eric Jacobson, director of fixed income research at fund rating firm Morningstar.
After a tough year in 2011, the bond funds at the heart of TCW are on a tear so far this year, Jacobson said. Gundlach’s old mortgage-heavy fund, the TCW Total Return Fund, is up 8%, beating 96% of comparable funds. The Metropolitan West Total Return Fund, a standout for decades, has risen 7.1% this year, putting it in the top 10% of its peers.
Gundlach’s DoubleLine Total Return Fund is up 5.8% so far this year, Jacobson said, putting it ahead of 73% of comparable funds.
Metropolitan West veteran David Lippman, the head of fixed income at TCW, will succeed Stern as president and CEO.
Saying TCW has been “a strong, vibrant part of the L.A. community for over 40 years,” Lippman said he was celebrating “a historic day.”
Carlyle is “happy with the way we run the firm,” Lippman said in a phone interview, noting that TCW’s mutual funds have grown 62% over the last year and a half to $42.5 billion in assets. “We’ve been happy with our relationship with Soc Gen, but it will be nice to have greater independence.”
Olivier Sarkozy, managing director of Carlyle’s Global Financial Services Group, said his team had looked at buying many asset managers but was attracted by the way Stern and Lippman were running TCW.
“This company is hitting on all cylinders, as you can see by its increase in assets over the last few years in spite of a difficult time,” said Sarkozy, the half-brother of former French President Nicolas Sarkozy. “We’re buying into a successful business with a lot of wind in its sails.”
