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Gundlach's Revenge


Somewhere in the world this week, Jeffrey Gundlach is smiling.

The founder of fixed-income asset manager DoubleLine Capital was fired in December 2009 from his post as chief investment officer of Los Angeles-based trust company TCW Group. He was replaced not by another CIO, but a whole new unit called Metropolitan West Asset Management.

Then, he was sued by TCW for allegedly stealing trade secrets after he set up shop with a slew of its former employees and its clients in creating DoubleLine, also in L.A.

According to trial testimony by TCW Group CEO Marc Stern last August, Gundlach's dismissal was based on the fact that the firm felt threatened by his importance (Gundlach's fixed income group managed more than half of TCW's then-$110 billion assets under management). The firm sought $350 million in damages from Gundlach for allegedly stealing trade secrets including client portfolio data, to start DoubleLine.

In turn, Gundlach countersued for $500 million claiming that TCW tried to avoid having to pay management and performance fees for the distressed-asset funds his group managed. Last September, a jury awarded Gundlach and three other former TCW employees $66.7 million in unpaid wages. The jury also found that Gundlach had breached his fiduciary duty to TCW, without awarding the firm any damages.

Fast forward to August 2012. As of press time, TCW's board of directors has agreed to a takeover offer by private equity giant The Carlyle Group. The deal would give the buyout firm a 65% stake held by French banking giant Societe General SA and the 16% stake held by SocGen affiliate Amundi. Carlyle also is expected to back a management team made up of executives from MetWest. And if the deal comes to fruition, MetWest CEO David Lippman likely will replace Stern as TCW's CEO.

In the end, Gundlach got money out of TCW but TCW got no money out of Gundlach. Along the way, the company that TCW brought in to take over what Gundlach did for it is instead, operationally, taking over TCW.

Meanwhile, TCW had $127 billion in AUM as of the end of June.

And DoubleLine now manages $40 billion, as of July 26.

What's not to smile about these days, if you're Jeffrey Gundlach?