Two of Gundlach's TCW Colleagues Say They've Resigned

Two key lieutenants to Jeffrey Gundlach have resigned from TCW according to a report in the Los Angeles Times. LA Times markets columnist Tom Petruno reported on Sunday that TCW senior mortgage managers Philip Barach and Louis Lucido confirmed their resignations after being reached by phone.

On Friday afternoon TCW's senior leadership terminated 2006 Morningstar Fixed Income Manager of the Year Jeffrey Gundlach and then announced its purchase of cross-town rival Metropolitan West Asset Management to run the firm's high-quality bond funds. TCW went to some lengths to argue that its hand was forced. Reuters reported on Sunday that it had obtained a letter to clients from TCW's CEO noting that Gundlach had "threatened to take certain actions that could have jeopardized the firm's ability to manage clients' fixed income assets."

Barach and Lucido received much less attention than Gundlach in recent years as he promoted the team's thriving flagship,  TCW Total Return Bond Fund (TGLMX). The fund grew handsomely in 2008 as Gundlach deftly steered around the mortgage crisis and then brought in huge sums of money in early 2009 as returns surged. Gundlach and company snapped up beaten-down mortgage bonds and drove the portfolio to a 21% gain by the end of October. Meanwhile, the fund's expanding size appears to have constituted a huge portion of TCW's overall asset growth thus far in 2009, and Gundlach has quickly become a well-known name among bond-fund investors.

It's unclear how well many of the firm's institutional clients were acquainted with Barach and Lucido, though, and the answer to that question may be critical. Met West, whose managers won Morningstar Manager of the Year honors in 2005 for their work on  Metropolitan West Total Return (MWTRX), is a skilled and well-known bond shop, and its mortgage team has been successfully investing in some of the same beaten-up mortgage sectors that Gundlach has lately favored. There's little doubt that the group can handle the job of managing TCW's bond assets, and its own record has been impressive. Still, investors in TCW's mortgage strategies who came aboard specifically for Gundlach, Barach, or Lucido may feel compelled to reconsider keeping their money with the firm. That could be especially true if the three (or perhaps more) elect to join a competitor or start up their own shop. Both of those possibilities would appear to have formidable obstacles, but the team's combined 2008 and 2009 performance will make for an attractive calling card.