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Fund Times

TCW Fund Outflows Taper Off

Assets appear to have stabilized for now.

Outflows from  TCW Total Return (TGLMX) were massive on the Monday following the ouster of its manager, Jeffrey Gundlach, on Friday, December 4. It was widely reported that more than $1 billion in assets fled on Monday, December 7, and that some $3.5 billion was gone by the end of the week.

That exodus seems to have slowed significantly for now, though. Morningstar has learned that less than $500 million departed the fund this past Friday, redemptions were below $350 million on Monday of this week, and Tuesday's outflow clocked in at a much lower $70 million. At this point, estimates suggest the portfolio holds roughly $8 billion.

Managers from Metropolitan West, the firm recently acquired by TCW to take over Gundlach's responsibilities, have said that they were prepared for large redemptions and that the markets were sufficiently liquid during the past few weeks to allow for the sale of assets at good prices. They also contend that by trimming securities they favored least across the entire portfolio, the fund's sector allocations have remained stable among government-backed agency mortgages and the non-agency mortgage bonds that have largely fueled returns in 2009.

There's no telling whether this trend will continue or reverse, but it does appear likely that redemptions may spike again at some point after the first of the year. In an interview earlier this week, Gundlach reported that his new firm DoubleLine was up and running, thanks in part to an equity investment and operational support agreement with Oaktree Capital Management, a widely known institutional manager started several years ago by another TCW alum, Howard Marks. Regardless of whether Gundlach is able to quickly raise institutional assets, anecdotal reports suggest that there are investors in TCW Total Return who are waiting for him to set up shop with a new mutual fund so that they can remain Gundlach clients.

It remains unclear just how soon that might happen. Gundlach expects that DoubleLine may receive SEC approval to begin operating as a registered investment advisor as early as the first day of January. And in order to shorten the wait, he's also planning to take up at least one of the many offers he's received to subadvise a mutual fund under the umbrella of an existing fund shop. Even that kind of effort would seem to require considerable time to consummate given the need to create and file extensive documentation with the SEC. Still, some firms specialize in quick launches, and things would ostensibly go even faster if Gundlach winds up taking over management of an existing fund rather than creating a brand new one. Stay tuned.

Eric Jacobson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.