A Year After Gross Exit, TCW Leads Winners as Pimco Sheds Assets

  • Gross departure set off scramble for billions in bond money
  • TCW shows it's possible to recover after star departs

In 2009, TCW Group Inc. watched as investors pulled billions of dollars after it ousted star money manager Jeffrey Gundlach. Today, the firm finds itself the beneficiary of another messy divorce.

TCW’s Metropolitan West Total Return Bond Fund collected more money than any other bond mutual fund in the year following Bill Gross’ sudden departure from Pacific Investment Management Co., according to data compiled by Bloomberg. MetWest Total Return received $35 billion in the 11 months ended Aug. 31, doubling its assets.

Gross’s exit on Sept. 26, 2014, touched off a scramble among competitors to capture the spoils. Pimco lost about $360 billion, very little of which found its way to Gross’s new fund at Janus Capital Group Inc. TCW had qualities some former Pimco investors were seeking: a strong long-term record, a simple-to-understand process for picking bonds and a team approach that didn’t depend on one person, however talented.

“They were in the right place, at the right time, with the right numbers,” said Lawrence Glazer, managing partner at Mayflower Advisors in Boston, where he helps oversee $2 billion.

The experience of TCW, started the same year as Pimco but long eclipsed by its larger rival, suggests that under the right circumstances, it is possible to recover from the loss of a superstar manager.

Besides MetWest, the biggest winners from Pimco’s bloodletting were Vanguard Group Inc., Gundlach’s DoubleLine Capital, Dodge & Cox Inc. and BlackRock Inc., each of which had a fund that attracted more than $10 billion.

Gundlach’s fund had the best returns of the group over one year and five years. It attracted less money than the MetWest offering, probably because it hasn’t been around as long and invests primarily in mortgages, rather than a broad mix of bonds, said Steven Roge, who oversees more than $200 million at R.W. Roge & Co., in Bohemia, New York.

DoubleLine declined to comment.

“Pimco continues to generate strong outperformance across its portfolios so far this year and has inflows to more than 40 strategies including Pimco Income Fund,” Group Chief Investment Officer Daniel Ivascyn said in a statement. “But our primary focus is on sustaining that performance over the long-term for our clients and investors.”

TCW was an unlikely candidate to profit from Pimco’s troubles. For years, the Los Angeles-based firm, under the ownership of French bank Societe Generale SA, was in the shadow of larger rival Pimco. TCW suffered withdrawals and dozens of defections when it fired Gundlach in December of 2009. By the end of February 2010, clients had pulled about $25 billion, some of which followed Gundlach to DoubleLine. Societe Generale eventually sold TCW to private-equity firm Carlyle Group LP in 2013.

TCW’s Feud

While TCW was feuding with its top money manager, Pimco, based less than 50 miles away in Newport Beach, attracted some of the biggest inflows the mutual fund world has ever seen. Gross’s Pimco Total Return Fund, which had beaten 99 percent of peers in 2007 and 82 percent in 2008 by avoiding the fallout from the housing collapse, pulled in $50 billion in 2009 alone. Assets in the fund peaked at $293 billion in 2013. Firm-wide assets doubled to $2 trillion between 2010 and 2013.

The woes at Pimco, bought by German insurer Allianz SE in 1999, started around that time. In January 2014, Chief Executive Officer Mohamed El-Erian announced his departure amid clashes with Gross. By August of that year, assets in the main fund had shrunk to $222 billion, following lackluster performance in 2011 and 2013.

Gross was synonymous with the firm he co-founded, and easily the best known money manager in America. When he walked out, it was no surprise that money left, too, said Roge, who pulled his clients’ assets out of Pimco Total Return after the resignation. 

Worst Redemptions

Pimco managed $1.52 trillion as of June 30 this year, down from $1.88 trillion on Sept. 30, a few days after Gross departed for Janus. Three mutual funds previously run by Gross, Total Return, Pimco Unconstrained and Pimco Low Duration, led redemptions among U.S. bond mutual funds in the 11 months ended Aug. 31, data compiled by Bloomberg show.

While investors pulled money from Pimco, few followed Gross to Janus. His Janus Global Unconstrained Bond Fund had $1.4 billion in assets as of Aug. 31, even after Gross put in more than $700 million of his own cash, according to Janus.

Financial advisers and institutional money managers offered a range of reasons why not more money flowed to Janus, including his acrimonious split from Pimco, his lack of a track record at an unconstrained bond fund and the fact that Janus was better known for its stock funds.

Recent Performance

Gross’s recent performance hasn’t helped. Since he took over the Janus fund Oct. 6, it lost 2.1 percent compared with a gain of 2.3 percent for the Barclay’s Aggregate Index, a common bond fund benchmark. This year, the fund is down 1.7 percent, trailing 76 percent of similar funds, according to data compiled by Bloomberg.

Janus didn’t respond messages seeking comment.

DoubleLine's Total Return Fund has beaten rival pools at Pimco and TCW over the past year.
DoubleLine's Total Return Fund has beaten rival pools at Pimco and TCW over the past year.

TCW laid the groundwork for its rebound the same day it fired Gundlach, when it announced the purchase of Metropolitan West Asset Management and named that firm’s investment chief Tad Rivelle to replace Gundlach. The acquisition added $30 billion in assets and a bond team with a record on which it could build.

The MetWest Total Return Bond Fund was started in 1997 by Rivelle, Laird Landmann and Stephen Kane, all of whom previously worked at Pimco. During the financial crisis of 2008, the team bought mortgages without the backing of the federal government, which had been beaten down in price when the housing market collapsed. The securities rebounded along with housing, helping MetWest outperform.

Over the past five years, the fund beat 96 percent of rivals, data compiled by Bloomberg show. Over 15 years it returned 6.6 percent annually, beating the 6.4 percent for Pimco Total Return, according to Morningstar Inc.

The firm now manages about $180 billion, about twice as much as it oversaw shortly after Gundlach’s departure.

When investors were searching for a Pimco substitute in 2014, MetWest was a logical candidate, said Bryan Whalen, who has worked on the flagship fund since 2004.

“We were one of the names people considered,” said Whalen, “because we had a track record and consistent philosophy. People know who we are and how we will be investing at any point in the cycle.”

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