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By Jason Stipp | 05-26-2010 02:33 PM

Gundlach on 'Too Big to Fail' Asset Managers

DoubleLine CEO, CIO, and portfolio manager Jeffrey Gundlach says if Citigroup was too big to fail, then so much greater is the risk for asset managers operating with multiples of that market cap.

Jason Stipp: You had mentioned in a recent interview about the government and the whole notion of the "too big to fail" and you said that that should really be extended to asset managers. I am wondering if you could elaborate a little bit on what you see as a risk of asset managers that may be too big to fail and can you confirm if you were talking about PIMCO with that comment?

Jeffrey Gundlach: Well, I'm not talking about any one firm in particular, I am just saying that any investment management firm that is controlling many hundreds of billions or even trillions of dollars and is using a lot of counter party risk for synthetic transactions is introducing a lot of systemic risk into the system. Remember when we had all those problems in September '08 and the government had to come to the rescue of Citibank, Citibank has a market cap of something like $300 billion, and that was enough capital at risk to be deemed too big to fail.

If there is an asset manager with $600 billion or $1.2 trillion or $3 trillion of investors' money and a lot of that is with counterparty risk and synthetic transactions because assets managers of that size are almost required to operate in these shadow markets, then there is a greater risk to investor capital in those asset managers' counterparty risk and synthetic transactions than Citigroup represented, so if Citigroup was too big to fail, then so much greater is the risk for asset managers at a multiple of that market cap.

Stipp: Jeffrey Gundlach of DoubleLine, thanks so much for joining us today and for your insights.

Gundlach: Thank you Jason. Hope to talk to you again soon.

Stipp: For Morningstar, I'm Jason Stipp and thanks for watching.

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