Bailout

Those surprisingly small TCW redemptions

By Felix Salmon

How much has the abrupt departure of star bond fund manager Jeffrey Gundlach cost his former company? Maybe less than you might think: about $2 billion left his fund in the 48 hours after he was fired, but redemptions seem to be slowing down, and that still leaves over $60 billion remaining.

Most of Gundlach’s investors are large institutions, of course, and they can sometimes move relatively slowly, and might be biding their time to see if they can renegotiate their deals with TCW or to see where Gundlach pops up next. But the good news is that an event which might have caused serious chaos in the volatile and illiquid mortgage market seems in reality to have passed with barely a ripple.

The guy who’s replacing Gundlach, Tad Rivelle, is having a torrid week, for sure. But institutional investors often respect relatively modest fund managers who have yet to reach the point at which they start believing their own press clippings:

Mr. Rivelle rejects the notion any bond manager has a secret formula that can’t be replicated. Bond selection “doesn’t rely upon some supercomputer or massive brain,” he says.

In the early days of this week, when TCW was releasing letters saying that Gundlach had “threatened to take certain actions that could have jeopardized the firm’s ability to manage clients’ fixed income assets,” the probability that it could all end in anything but tears seemed slim indeed. But it’s a testament to the newfound strength of the bond market that so far this is more of a financial-gossip story than anything with systemic implications. Well done, bond market, for keeping your head and not going crazy on the immediate-redemptions front.

Full post as published by Macroprudential on December 11, 2009 (boomark / email).