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TCW public-private fund frozen by US government

The departure of TCW’s chief investment officer Jeffrey Gundlach has triggered a key man clause in its PPIP fund, according to the US Treasury.

A PPIP fund raised by The TCW Group has been frozen by the US government after the firm dismissed its chief investment officer Jeffrey Gundlach.

The fund held an initial close on at least $500 million of equity under the Treasury’s Public-Private Investment Program (PPIP) at the end of September, and was one of the first two PPIP managers to successfully raise the minimum commitment level set by the government.

However, following’s last week departure of Gundlach, a Treasury spokesman confirmed the fund had been stopped in its tracks while the government evaluated its “options”.

In an emailed statement, the Treasury said a “key person event” had been triggered, adding that the public-private investment fund (PPIF) “cannot make investments or dispositions (other than to avoid a material loss). Treasury is currently evaluating its options as an equity and debt investor in the PPIF”.

Last Friday, TCW said Gundlach had been “relieved of his duties” as the group's chief investment officer and portfolio manager of the TCW Strategic Income Fund, stressing the dismissal wouldn’t change the strategy of the fixed income mutual fund nor its “discipline or style”.

However, the departure has had an effect on the firm's PPIP fund, the UST/TCW Senior Mortgage Securities Fund. PPIP funds are targeting commercial and residential-backed mortgage securities issued before 2009, with an initial rating of AAA or equivalent. Gundlach has previously been dubbed by the mainstream media as TCW’s “Mortgage Man”, specialising in AAA mortgage-backed securities.

According to various media reports today, TCW has put $450 million of mortgage securities up for sale as clients withdrew $1 billion from its funds following Gundlach’s dismissal. Reports added that the ex-CIO had threatened to quit and take key personnel with him.  TCW was unavailable for comment at press time.

Nine managers were selected to take part in the PPIP programme in July. To date, eight have held initial closes on their funds, including AllianceBernstein; Angelo Gordon and GE Capital Real Estate; BlackRock; Invesco; Marathon Asset Management; RLJ Companies and Western Asset Management; the TCW Group; and Wellington Management Company.

Together they have raised a total of $5.07 billion of private commitments for their PPIP funds. The private capital will be matched by a further $5.07 billion of government funding and then doubled with Treasury debt capital to provide $20.26 billion of purchasing power. Only Oaktree Capital Management has yet to hold a first close.