Can TCW convince nervous fund investors to stay?
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For the moment, Tad Rivelle’s success as a money manager may be judged less by what he makes than by what he keeps.
One week ago, Rivelle and his L.A. firm, Metropolitan West Asset Management, agreed to a buyout by larger cross-town rival TCW Group, and immediately took responsibility for most of TCW’s $65-billion in bond portfolios.
TCW sought out Rivelle to fill a huge vacuum: Simultaneous with acquiring Met West, TCW fired its star bond fund manager and chief investment officer, Jeffrey Gundlach, after an internal power struggle.
Since then, TCW has faced the departures of most of Gundlach’s key lieutenants -- and heavy redemptions from the firm’s flagship bond mutual fund, TCW Total Return Bond, as some stunned investors also voted with their feet.
A major risk for TCW is that more of its mutual fund investors, as well as institutional clients such as pension funds, could yank their money, forcing Rivelle to liquidate assets. Gundlach and his team already have set up offices in the US Bank tower in downtown L.A. and are hoping to get back into the money management business within a matter of weeks to lure away former clients.
Rivelle, 48, is expected to address TCW investors’ concerns in a 10 a.m. PST conference call today open to the public.
Although Met West, with about $30 billion in bond assets, managed much less than Gundlach, Rivelle and his team of 30 managers have built a strong track record with their flagship mutual fund, Met West Total Return Bond, over the last five years. Morningstar Inc. calls the fund “one of the best core bond funds around.”
But Rivelle, an alumnus of bond titan Pimco who co-founded Met West in 1996, is quick to concede that he doesn’t have Gundlach’s performance numbers. Over the last five years, Met West Total Return Bond gained 6.35% a year, trailing TCW Total Return Bond’s average annual gain of 7.32%, according to Bloomberg data
If TCW clients say that they believe they’ve “traded down” based on historical performance, “You can’t argue with it,” Rivelle said.
Even so, he says he wants to convince TCW investors that his team can “deepen the talent pool and broaden the product offerings” at the merged company, at a time when individual investors remain ravenous for bonds of all kinds.
While Gundlach’s specialty is mortgage-backed bonds, Met West’s portfolios typically hold a mix of mortgage, corporate and government bonds.
Still, Rivelle said he expected to maintain TCW Total Return Bond as primarily a mortgage-bond fund. “We have to be very respectful of the reason investors were attracted to [the fund] in the first place,” he said.
He also said he believed that non-government-guaranteed mortgage bonds, which have rebounded sharply in price this year from extremely depressed levels in 2008, still offered attractive returns even though home foreclosures in general may worsen.
Gundlach held about one-third of TCW Total Return Bond in non-government-guaranteed mortgage securities, with the rest in low-risk government-guaranteed (or “agency”) bonds. Rivelle said he was “very comfortable” with those overall allocations.
-- Tom Petruno