TCW ousts star fund manager Jeffrey Gundlach

Stunning the world of bond investing, Los Angeles investment firm TCW Group Inc. on Friday ousted its star fund manager and simultaneously agreed to acquire smaller L.A. rival Metropolitan West Asset Management.

TCW said Jeffrey E. Gundlach had been “relieved of duties� as chief investment officer and would be replaced in part by the co-founder of Metropolitan West.

Gundlach, who also was removed from TCW’s board of directors, had been with the downtown L.A. firm for 24 years. He is well-regarded in the investment industry, especially for his management of portfolios that hold mortgage-backed securities.

“He’s extraordinarily talented at what he does,� said Michael Rosen, a chief investment officer at pension consultant Angeles Investment Advisors in Santa Monica, whose clients have about $100 million invested with TCW.

“Now that he’s not there, it raises concerns of keeping our money with TCW,� Rosen said. “For me, he clearly was the key personality at the company.�

The terms of the deal weren’t disclosed. TCW, parent of Trust Co. of the West, manages about $110 billion in assets, primarily for institutional clients such as pension funds but also for small investors via retail mutual funds.

Employee-owned Metropolitan West Asset Management, located on Wilshire Boulevard on the edge of Brentwood, has about $30 billion in assets under management. Both firms focus on bonds and other fixed-income investments.

TCW’s long-term fate has been clouded by uncertainty this year, after its French parent company, banking giant Societe Generale, indicated it expected to sell or spin off the Los Angeles firm in the next five years.

That announcement spurred talk that TCW’s management team might try to lead a leveraged buyout of the firm.

Rumors also have circulated on Wall Street that Gundlach was considering jumping to a rival money manager.

Eric Jacobson, a bond fund analyst at Morningstar, suggested that TCW might have been trying to head off the risk of being jilted by Gundlach.

“With more than $100 billion under management, a sudden Gundlach departure would have left TCW in the lurch, and an asset exodus would have been disastrous,� Jacobson wrote in an online commentary. “Investors have fled for the exits in the past when other firms have experienced major changes to their businesses.�

“Clearly,� Jacobson added, TCW Chief Executive Marc Stern “and his team didn’t want to risk such a scenario and felt they had to act.�

Still, firing Gundlach raises the risk that members of his team at TCW could also leave.

TCW’s acquisition of Metropolitan West is expected to be completed in the first three months of 2010.

After that happens, Tad Rivelle, Metropolitan West’s chief investment officer, is to hold that title in TCW’s high-grade fixed-income group.

In the meantime, however, Metropolitan West professionals will “immediately assume portfolio management responsibilities for all of TCW’s high-grade fixed-income client accounts,� TCW said in a statement.

Gundlach, 50, became investment chief at TCW in 2005 after reaping strong returns during the housing market boom.

In the last few years, as the housing boom busted and many mortgage bonds exploded, Gundlach managed to steer his flagship mutual fund clear of the market disaster.

His $12-billion-asset TCW Total Return bond fund has gained an average of 9.1% a year over the last three years, beating 99% of its peer bond funds.

Last month, Morningstar named Gundlach one of its nominees for “fixed-income manager of the decade,� on a list that also included bond guru Bill Gross at Newport Beach rival Pimco.

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