Stern Anticipated Saving $50M By Swapping Gundlach for MetWest
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Thursday, August 25, 2011

Stern Anticipated Saving $50M By Swapping Gundlach for MetWest

In October 2009, Trust Company of the West (TCW [see profile]) CEO Marc Stern estimated that he could save $50 million in annual fees by swapping chief investment officer Jeff Gundlach's mortgage-backed securities team for Metropolitan West (MetWest). TCW fired Gundlach and announced its acquisition of MetWest in December 2009 -- TCW claims it dumped Gundlach for fiduciary breach and swiping trade secrets, while Gundlach, now chief of DoubleLine [see profile], counters that the mutual fund firm got rid of him to save money.

To read the rest of the story of the fight between Gundlach and TCW, click here.

The cost-savings estimate came out in an e-mail, revealed in court in Los Angeles yesterday during Stern's testimony, that Stern sent to an executive at TCW's French parent, Societe Generale. Stern estimated that MetWest would take only 10 percent of TCW's fees, compared to the 35 percent that Gundlach's team took. Bloomberg, the Los Angeles Times, Pensions & Investments and Reuters all covered Stern's testimony yesterday.

Stern also testified that he asked a TCW lawyer to watch Gundlach's e-mails in September 2009. And Stern claimed that, because of what Gundlach told TCW clients after his departure, that TCW had to cut fees in its special opportunities credit closed-end funds: from 200 basis points to 100 bps in management fees and from 2000 bps to 500 bps in performance fees.

Yesterday jurors also saw handwritten notes, from an August 27 meeting, that included the line: "Unfortunately, we've had to terminate JG for cause." Stern testified that no one at the meeting was drafting a press release about firing Gundlach.

And Stern testified that he did not inform the U.S. Treasury Department about Gundlach's impending departure. The Treasury hired TCW as part of the Public-Private Investment Program (PPIP) to buy mortgage assets from banks, and Gundlach was slated as the TCW PPIP fund's PM. The Treasury froze and then withdrew its assets in the fund after Gundlach's departure.

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