08/24/2011

TCW Lawsuit Juices Inflows for DoubleLine

Investors are pouring increasing amounts of cash into DoubleLine Capital, just as founder Jeffrey Gundlach begins defending himself against a lawsuit by former employer TCW.

DoubleLine Opportunistic Income Fund received inflows of $100 million or more on multiple days during the week starting Aug. 8 and collected $85 million on top of that on Aug. 15. That’s up from average daily inflows of $20 million to $30 million for the fixed-income vehicle in prior weeks.

The rush of capital comes as something of a surprise, given that TCW’s case commenced in Los Angeles County Superior Court on July 28. Typically, fund backers shy away from managers who are entangled in a legal proceeding. But the lawsuit might actually have helped in this case by shining a spotlight on Gundlach, who in his days at TCW was known as one of the world’s most savvy bond investors. He took the stand Aug. 15.

“That’s the market speaking,” one fund-data analyst said. “Gundlach is still considered to be on the rise, while TCW looks to be going in the opposite direction.”

That’s not to say DoubleLine had trouble raising capital before. Indeed, Strategic Insight ranks the Los Angeles firm number-one ever in terms of first-year inflows among mutual fund managers in the U.S.

The opportunistic fund, which combines characteristics of a hedge fund, private equity vehicle and mutual fund, now has more than $600 million under management. But most of DoubleLine’s assets are in the $8.5 billion DoubleLine Total Return Bond Fund, which functions as a more straightforward mutual fund.

DoubleLine Opportunistic Income Fund launched in September 2010 and went on to post a gain of 28% as of July 20, thanks in part to bets on mortgage-backed bonds. DoubleLine Total Return Bond Fund was up 13% as of the same date. That compares to a year-to-date gain of 4.5% as of Aug. 16 for TCW Total Return Fund, which Gundlach once ran.

TCW abruptly dismissed Gundlach in December 2009, despite impressive returns he racked up while overseeing a bond portfolio of some $70 billion. TCW followed up a month later by filing its lawsuit, alleging that Gundlach and key aides conspired to steal information for use in the creation of DoubleLine. The $120 billion firm also accused him of keeping drug paraphernalia and pornography in his office.

Industry players cite Gundlach’s compensation as possible motivation for his dismissal. In 2009 alone, he was paid more than $40 million. Gundlach filed a countersuit in February 2010, saying TCW dismissed him to avoid paying him his share of management and performance fees.

Most of the 65 fixed-income staffers who worked under Gundlach at TCW have since followed him to DoubleLine. Indeed, Gundlach boasts the largest mortgage-backed securities team in the business. Overall, DoubleLine has about $14 billion under management.

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