The recent dismissal of TCW Group’s chief investment officer has triggered the Treasury Department to freeze the Public-Private Investment Program (PPIP) funds that TCW is in charge of, according to market reports.
TCW, the reports said, is believed to have put $450 million of mortgage securities up for sale as clients pulled about $1 billion from its funds, following last week’s firing of the Los Angeles-based firm’s chief investment officer.
At least 14 of the 65 professionals in the fixed-income department quit or were fired following the dismissal of Jeffery Gundlach, who oversaw $65 billion, or 59%, of the $110 billion managed by TCW for clients. The firm said Dec. 7 that he had threatened to quit and take key personnel with him.
Gundlach, who was fired Dec. 4 after TCW acquired rival firm Metropolitan West Asset Management, disputed the assertion.Erin Freeman, TCW spokesperson, told ASR sister publication Investment Management Weekly Dec. 7 that Gundlach’s Dec. 4 dismissal came as a result of threats he made “to leave TCW and take key employees with him which would have interrupted [its] ability to manage clients high grade fixed-income assets.
Meg Reilly, Treasury spokesperson, told IMW today in an emailed statement that the federal agency has notified TCW that a “Key Person Event,” under the limited partnership agreement, has occurred.
“Upon the occurrence of a Key Person Event, the PPIF cannot make investments or dispositions (other than to avoid a material loss),” Reilly said in the email. “Treasury is currently evaluating its options as an equity and debt investor in the PPIF."
In a phone conversation today, Freeman added that the “Key Man” clause is a normal function when there is a change in the investment management side and said it is coordinating efforts with the federal agency.
“We are in regular communications with Treasury and working to make sure we meet their contractual due diligence requirements,” Freeman said.
Jesse Litvak, a mortgage trader at Jefferies said that a lot of questions have ensued about the potential amount of supply the market will now see with the redemptions created by the sale.
“There are other sellers that are still selling bonds too, but even with that, this week we have seen (including today's lists) $1.9bln current out for the bid,” he said. “In the three weeks of late October into early November this year, we saw 12 plus billion current over a three-week period. In that timeframe, prices held in at the beginning of the selling, and then by the end things had cheapened by three to six points on average, but some of that selloff has been recaptured.”
Litvak said that so far all lists are trading well. “I'm hopeful that the Treasury will handle the frozen TCW PPIP funds in a responsible fashion, and it’s my view that we will see little ripple effects from that event,” he explained. “There are seven other PPIP guys buying, and there are plenty of other accounts that are looking to add as well.”