Bailout

How Jeffrey Gundlach treats his clients

By Felix Salmon

TCW’s lawsuit against Jeffrey Gundlach — Dealbreaker has the whole thing here — is nominally asking for lots of money. Of course it is. But I suspect that at heart it’s a strong message to all of those clients who haven’t (yet) left TCW for Gundlach’s new shop. Gundlach is a conniving diva, it says, who not only is willing to break his fiduciary duties if he thinks that’s in his own interest, but is also more than happy to leave his clients in the lurch as well.

I have no idea whether the allegations of law-breaking are true, although they’re both detailed and plausible. But the fate of Gundlach’s former clients is clear. Gundlach abandoned them for a new shop with no track record: even the fastest-moving institutional investor will take a long time to do its due diligence on DoubleLine, and will surely take even longer given the allegations in this lawsuit. And Gundlach’s destructive war with TCW shows that he wishes nothing but harm for TCW — and, by implication, anybody who stays with TCW in the wake of his departure.

Now that Gundlach has left TCW, a lot of TCW’s clients will be thinking about leaving. But I suspect Gundlach might have overestimated the proportion of TCW’s redemptions which will end up at DoubleLine. Bond investors are conservative folks, and Gundlach’s former clients at TCW are unlikely to want to run the risk of being treated in a similar manner again — especially if the allegations about Gundlach stealing attorney-privileged client information are true.

Full post as published by Macroprudential on January 08, 2010 (boomark / email).