What a Significant Manager Shakeup Means for These Gold-Rated Bond Funds

What Happened

TCW has announced big changes to its fixed-income management ranks, the most significant of which are that generalist portfolio managers Laird Landmann and Stephen Kane will retire at the end of 2023 and 2024, respectively. As Landmann and Kane help oversee the majority of TCW’s $210 billion in assets under management, Morningstar has placed their strategies Under Review: Metropolitan West Total Return Bond MWTIX, TCW Core Fixed Income TGFNX, Metropolitan West Low Duration Bond MWLIX, and Metropolitan West Unconstrained Bond MWCIX.

In addition to those retirements, the firm also announced a slew of promotions that take effect immediately. Ruben Hovhannisyan and Jerry Cudzil are now generalist portfolio managers. Hovhannisyan has worked closely with Landmann, Kane, and Bryan Whalen, while Cudzil has served as co-head of global credit and head of credit trading. The pair will be added to the firm’s manager lineup soon. Steve Purdy, co-head of global credit and head of credit research, has also joined the management team of Metropolitan West Unconstrained Bond. Finally, four other senior investment professionals have been promoted to senior portfolio manager, a newly created role.

Why It Matters for Investors

Landmann and Kane’s dual retirement announcement is not the firm’s only recent brush with major leadership changes. After much behind-the-scenes drama, former CIO Tad Rivelle retired at the end of 2021, while former CEO David Lippman followed him one year later, both as part of an agreement for detente. Kane and Whalen inherited Rivelle’s mantle as co-CIOs, while Katie Koch joined in February 2023 to replace Lippman as CEO. As part of the most recent announcement, Kane will give up his co-CIO title at the end of 2023 but remain as a generalist portfolio manager through 2024. Those earlier departures, particularly Rivelle’s, were unexpected and set off the domino effect currently playing out.

It will be hard to replace their expertise and shared experience, which dates to the early 1990s. Rivelle, Landmann, and Kane all started at Pimco, moved on to Hotchkis & Wiley, and cofounded Metropolitan West Asset Management in 1996, which TCW acquired in late 2009. Their team won the Morningstar Fixed-Income Fund Manager of the Year award in 2005 and has been nominated many times since.

If not household names, all three had built towering reputations in the fixed-income world, eventually even rankling Bill Gross, their old boss at Pimco. Few standouts leave Pimco for reasons other than retirement, and their success in building Metropolitan West to become a credible competitor was extraordinary.

They managed their flagship Metropolitan West Total Return Bond fund—which at one point was the largest bond fund in the world—together until Rivelle departed in 2021. Even Whalen, who until this week was the youngest and shortest-tenured generalist, has been a manager on Metropolitan West Total Return Bond since December 2004 and a generalist manager since 2013. That level of stability and shared experience, as well as their substantial investment in their own funds and in TCW itself, is one of the things that set this team apart from competitors for so long.

Morningstar’s Take

But careers don’t last forever. The future retirements of Landmann and Kane truly represent the end of one era and the beginning of another. Both before and after Whalen arrived, the group had been through more than one proverbial firestorm together—their downfall had been predicted by envious competitors more than once—but they had always managed to survive and thrive. The firm will miss that steadiness in the face of market turmoil, the sheer depth of their experiences, and their voice within investment discussions. There are few like them in the industry today.

Positively, the firm is making room for the next generation of fixed-income leaders and highlighting the depth of investment expertise below the generalist level. The strength of the underlying investment groups, including corporate credit, securitized credit, agency mortgages, and rates, has long made the group among the strongest in the industry and contributed to the historical High People rating that Morningstar has had on many of the firm’s funds, even if that hasn’t always been recognized by the industry or investing public. Between the two new generalists, Hovhannisyan brings deep knowledge of portfolio construction and analytics—vital to a diversified bond fund—while Cudzil has kept an impressive and steady hand on the firm’s corporate trading.

The new investment committee appears to be mostly formalizing discussions that take place regularly between the generalist and specialist managers. But the four new senior portfolio managers will bring new voices into that debate, perhaps further shifting the dynamic in new or unexpected directions.

Morningstar is in deep discussion, both internally and with TCW, to better understand these changes and their implications for TCW’s fund investors.