TCW Group has moved to quell investor discontent after it called its fired chief investment officer a drug user and pornography addict by cutting fees.
The Los Angeles-based firm radically slashed fees on two distressed-debt hedge funds that had been set up and managed by Jeffrey Gundlach, who was fired in December. In a lawsuit against Gundlach, TCW accused him of trying to poach its clients and employees, calling his new firm “entirely the product of the defendant’s theft of TCW property, fraud and breach of fiduciary duty.”
For investors in the Société Générale unit’s TCW Special Mortgage Credit Funds I and II, it means a big discount. TCW has halved the funds’ management fees to 1% from 2%, and slashed its performance fees to 5% from 20%.
Investors were also given the opportunity to redeem as part of a key-man clause triggered by Gundlach’s exit.
Both funds were set up to take advantage of the credit crisis. They are now being managed by the fixed-income team led by Tad Rivelle that TCW acquired from Metropolitan West Asset Management.
Gundlach has founded DoubleLine Capital with about 45 former TCW employees. His new firm is backed by Los Angeles hedge fund Oaktree Capital Management, itself founded by TCW veterans.
TCW, for its part, has sought to sully its former star’s reputation. In its lawsuit, the firm alleges that it found marijuana, drug paraphernalia, 34 “hardcore” pornographic magazines, 36 pornographic DVDs and videos and “a collection of 12 sexual devices” in Gundlach’s former office following his ouster.