Analysis: Gundlach on top even after court setbacks

Fri Sep 16, 2011 10:12pm BST

Bond fund manager Jeffrey Gundlach testifies in court in Los Angeles August 11, 2011 in this still image from pool web video. REUTERS/CVN/Pool

Bond fund manager Jeffrey Gundlach testifies in court in Los Angeles August 11, 2011 in this still image from pool web video.

Credit: Reuters/CVN/Pool

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(Reuters) - Even when the newly anointed "bond king" Jeffrey Gundlach suffers some setbacks in an ugly court spat, he manages to come out a winner.

On Friday, a Los Angeles jury found Gundlach liable for breaching his fiduciary duty as well as taking trade secrets and interfering with the contracts of clients at the TCW Group Inc., the asset management firm that fired him in December 2009.

But the jury awarded TCW, a unit of French bank Societe Generale, no damages on the breach of fiduciary duty and interfering with the contracts claims, nor any punitive damages. A judge will determine possible damages on the trade secrets claim later.

Gundlach also won an unpaid wages claim of $66.7 million against TCW and so far he appears to have emerged largely unscathed from the very public court battle.

"Victory!" was all Gundlach said in an email to Reuters after the verdict was announced on Friday.

And that might not be just hype even from a bond fund manager who refers to himself as "The Godfather".

Dubbed earlier this year in Barron's weekly as the new "King of Bonds," Gundlach is also set to attract an additional wave of investor money.

Already, Gundlach has amassed more than $16 billion at DoubleLine Capital, the firm he started in January 2010, weeks after his firing.

The majority of DoubleLine's impressive growth thus far has come from retail investors. They added $3.6 billion to DoubleLine's mutual funds last year and another $6.2 billion this year through the end of August, according to Lipper data.

For their part, institutional investors, including pension funds, foundations and endowments, have largely shied away from DoubleLine because of the litigation and the risks of negative headlines that follow.

That is likely to change now. And that could make DoubleLine a more formidable competitor against the largest bond managers like BlackRock, Allianz's PIMCO unit and Legg Mason's Western Asset Management.

"Given DoubleLine's extraordinary investment performance and the positive trial outcome, we anticipate that institutional investors will now be eager to do business with DoubleLine," said John Frank, managing principal at Oaktree Capital Management, a firm with $80 billion under management.

Oaktree, founded by another TCW refugee, Howard Marks, put up $20 million to help get DoubleLine started in 2010. Oaktree got a 20 percent ownership stake in return, Gundlach revealed at the trial.

A fixed-income investment officer at a major pension fund told Reuters that if the verdict went against Gundlach, it would have been tough to invest with DoubleLine. He said the verdict has "lifted a cloud" for Gundlach.

Gundlach has always had an enviable track record when it comes to his investing prowess. And he has made numerous public appearances at conferences and on television to promote his new firm.

"He's the closest thing you have to a rock star in the bond market," Lawrence Glazer, managing partner of Boston-based Mayflower Advisors, said. "It's not just his performance record. It's also his personality."

Glazer's firm, which oversees $800 million mainly for wealthy clients, invested with Gundlach at TCW and moved to follow him at DoubleLine.

Gundlach's latest mutual fund, the DoubleLine Core Fixed Income Fund, has gained 11.04 percent over the past 12 months, beating all of the more than 1,000 competing funds in its category, according to Morningstar.

The list includes both the team that took over his old fund, the TCW Core Fixed Income Fund, which gained 6.45 percent, as well as famed PIMCO manager Bill Gross's PIMCO Total Return Fund, which gained only 3.22 percent.

TCW struggled with outflows after Gundlach left. Institutional investors withdrew $20.5 billion from TCW in 2010 and another $300 million in the first quarter of 2011, according to eVestment Alliance, a market research firm.

The outflows have since ended as TCW brought in $378 million from institutions in the second quarter of 2011.

(Reporting by Jennifer Ablan in New York and Aaron Pressman in Boston; Additional reporting by Matthew Goldstein; Editing by Martin Howell)