TCW liquidates public-private fund

The TCW Group will liquidate its $500 million PPIP fund and hand back commitments to investors after a key-man clause was triggered following the departure of the firm’s chief investment officer.

Investors in UST/TCW Senior Mortgage Securities Fund, which was one of the first public-private investment programme vehicles to hold a first close in September last year, will now be allowed to transfer their commitments to other PPIP managers, the US Treasury Department told Bloomberg.

The fund is being liquidated following the departure of TCW’s former chief investment officer Jeffrey Gundlach in early December, which triggered a key man clause prompting the government to freeze the fund.

A Treasury official told PERE today, “after careful consideration”, private investors and TCW had agreed to end the fund, “releas[ing] each limited partner (including Treasury) from its capital commitment to the fund and to liquidate the fund in manner that maximises value to all investors”.
 

The Bloomberg report said the Treasury would provide matching capital and loans to the managers which received additional investor commitments, under normal PPIP rules.
 
TCW added the vehicle had already purchased mortgage-backed securities, although a spokeswoman was unable to provide further details. Nine managers were selected by the US Treasury last July to raise funds targeting commercial and residential-backed mortgage securities issued before 2009, with an initial rating of AAA or equivalent.

“Given that we are at a very early stage of investment in this particular product, and in light of the recent changes in the portfolio management team, we believe this action is appropriate and in-line with TCW's commitment to act in the best interests of our clients,” said chief executive officer Marc Stern in a statement.

Gundlach was “relieved of his duties” as TCW’s chief investment officer and portfolio manager of the TCW Strategic Income Fund at the start of December, after reportedly threatening to quit and take key personnel with him. Gundlach has previously been dubbed by the mainstream media as TCW’s “Mortgage Man”, specialising in AAA mortgage-backed securities.

As of the end of December, PPIP managers had raised around $6 billion of equity to acquire legacy securities. Oaktree Capital Management was the last manager to hold a first close, partnering with Alaska-based Arctic Slope Regional Corporation, which runs various companies promoting the Inupiat community.