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Jeffrey Gundlach Establishes New Firm

Announcement comes 10 days after dismissal from TCW.

Morningstar Analysts, 12/14/2009

He's back.

Well, almost. This morning, Jeffrey Gundlach, recently departed CIO and manager of TCW Total Return TGLMX, announced the formation of a new firm with several of his former TCW colleagues. The firm is called DoubleLine, which is both a nod to the work of Gundlach's favorite artist, Piet Mondrian, who coined the term and style of "neoplasticism," as well as the risk-averse notion that one should never cross the double lines painted on a road. The firm will also have the backing of Oaktree Capital Management, an L.A.-based shop founded several years ago by TCW alum Howard Marks. The release notes that Oaktree will have a minority interest in DoubleLine. And despite comments Gundlach made to Pensions & Investments last week, indicating that he might enter into a temporary joint venture with an established firm, he insists there's nothing temporary about DoubleLine and its deal with Oaktree.

It would appear to be a logical combination, and Gundlach believes that it's a deal with many synergies. Marks' firm specializes heavily in credit strategies such as high yield and distressed debt, among others. Gundlach says that he's planning to leverage Oaktree's administrative and support capabilities, with the longer-term hope of pairing the two firms' investment capabilities to offer products that neither firm might otherwise operate alone. In the meantime, he'll soon be subleasing space on two floors adjacent to Oaktree's offices.

Investors won't be able to gain access to Gundlach's skills until the firm is up and running as an SEC-registered investment advisor, but he believes that his application for that status could be approved as early as the first of the year. One piece of business he's hoping to attract is that of the Treasury Department's PPIP program. That agency suspended TCW's involvement in the program after Gundlach was fired by the firm, and Gundlach believes that the association of DoubleLine and Oaktree is a perfect alternative.

DoubleLine plans to run its own branded mutual funds, though that process will take some time. Gundlach eventually would like to see the firm run at least five strategies that would include a replication of the style Gundlach used at TCW Total Return, a government-agency mortgage-only strategy, a credit-only strategy, a core plus strategy (likely benchmarked off of the Barclays U.S. Aggregate with the freedom to invest some assets in high-yield and foreign securities), and one built to provide competitive returns in a rising-rate environment.

In the meantime, however, Gundlach plans to quickly enter into a subadvisory arrangement--perhaps right after his SEC registration is approved--under which his firm will manage money for an advisor with its own distribution and mutual fund infrastructure. That model has been used by other firms, including PIMCO, which runs money under the Managers Fremont and Harbor Funds brands. There are a number of such firms from which to choose, and other sources confirm that several of them have actively sought out Gundlach in the past week.

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