5 Key Officers to Leave TCW, Form New Firm : Securities: Their departure is likely to spark a heated battle for TCW’s employees and clients.
In a major Wall Street breakup, five key officers are leaving Trust Co. of the West, one of Los Angeles’ largest money management firms, after their attempt to split off their $7-billion-asset TCW divisions was angrily rejected by company founder Robert A. Day.
The five, including high-yield junk bond experts Howard Marks and Bruce Karsh, will set up a new money management company called Oaktree Capital Management, effective April 7.
Their departure is likely to spark a heated battle for TCW’s employees and for its mostly institutional clients, who will now have to decide between staying with TCW or going with Oaktree.
The high-profile split between Day and the five managers--whose actions Day called “disloyal at the very least”--is the latest challenge to TCW’s gilded Wall Street image.
In 1994, the $48-billion-asset firm suffered deep losses in its massive portfolio of mortgage-backed bonds and on its once-$4.5-billion portfolio of Latin American stocks and bonds.
Marks, who heads TCW’s U.S. bond area, said the decision to go on his own had nothing to do with TCW’s recent performance. “I’m not leaving because of problems at TCW,” said Marks, 48. “We want to run our own company.”
Along with Marks and Karsh, the new firm will include TCW officers Sheldon Stone, Richard Masson and Larry Keele. All five have been with TCW since at least 1988 and all manage bond portfolios. TCW is also a major investor in U.S. and foreign stocks.
In a letter to employees on Wednesday, Day, 47, said he was “very disappointed” to announce the resignations of the five officers, who last week “presented us with a proposal to . . . in effect, simply take with them, over time, TCW’s special credits, convertible value and high yield businesses. We rejected that because we believe our clients will receive better service and better performance from TCW.”
Marc Stern, president of TCW Group, said Marks’ group had proposed departing with the approximately $7 billion in accounts they manage and sharing management fees on that portfolio with TCW “for a number of years.”
“It didn’t make sense to us to go along with that,” Stern said.
Marks and Stone manage TCW’s $2.8-billion high-yield bond portfolio. Keele manages the $1.5-billion convertible-bonds portfolio, and Karsh and Masson run the $2.2-billion special-credits portfolio, which is mostly made up of bonds of bankrupt or otherwise distressed companies.
Day told employees that Karsh and Masson will continue to manage the bulk of the special-credits portfolio on TCW’s behalf despite the bitter breakup. Stern said the unique nature of those bonds “makes it difficult to just parachute somebody new in there.”
But TCW quickly scrambled to find a new manager for its high-yield bonds. It chose Crescent Capital of Los Angeles, which TCW said already runs $1.5 billion in junk bonds. Its principals, Mark Attanasio and Robert Beyer, are Drexel Burnham Lambert alumni.
In an obvious effort to dissuade TCW clients from defecting, Day said in his letter that Crescent’s junk bond track record has been better than TCW’s record over the past three years. Day also announced that his co-founder, Ernest Ellison, will return from semi-retirement to take over Marks’ job as head of domestic bonds.
Day, who founded TCW in 1971, said in his letter to TCW’s 580 employees that “no one person is so talented as to be irreplaceable” and that the firm will “redeploy our resources quickly” to fill the void left by the five officers.
