As many savvy investors know by now, DoubleLine Capital has a story to tell: a creation myth that involves CEO Jeff Gundlach’s stormy departure from the TCW Group, the lawsuit that followed and the dramatic turnaround of a company that blasted from zero to $53 billion of assets under management in just three years.
But as the stellar DBLTX and DLTNX Total Return Bond funds approach their three-year benchmark on April 6 and five new DoubleLine funds prepare for launch, what is less known is the story behind the 45 or so people who followed Gundlach when TCW fired him in December 2009.
Over truffle omelets in The Palace on Wednesday in midtown Manhattan, Gundlach loyalist Bonnie Baha talked about why she left TCW after a 20-year career there to follow the eccentric and highly successful bond king as he started up DoubleLine the Monday after his Friday firing, even though she received offers from other firms, including Standard & Poor’s.
“If I had to place my money on somebody, I’d place it on Jeffrey,” said Baha, who serves as a DoubleLine portfolio manager and co-director of global developed credit at the company’s Los Angeles headquarters. “There is a ‘revenge is sweet’ factor, but there was a religious and spiritual element.”
TCW Experience Was an 'Unplanned Pregnancy'
There was also an element of Baha’s feeling as if she was experiencing “an unplanned pregnancy,” when TCW rocked her world with its sudden announcement that it was replacing Gundlach with a fixed-income team from Metropolitan West. “I came in on Monday, and there were people we didn’t know sitting at our desks.”
Later, in 2010, Gundlach evoked those spiritual feelings after TCW sued, potential clients left in droves, and he came to his DoubleLine colleagues with tears in his eyes to promise that he took it as his personal responsibility to be sure they received a paycheck, recalled Baha, who also remembers that he was so stressed that he was losing weight and sleep as his loyal followers were paying their bills with credit cards and savings.
To be sure, Baha acknowledges that Gundlach’s strong personality can be read as arrogant—something she herself did back in the 1990s when she was a vice president on the TCW trading floor and didn’t like the way he was dressing down a colleague publicly. As Bloomberg reports it, Baha called Gundlach “a freaking jerk,” but as Baha herself remembers it, she called him the much more blunt, “f*****g a*****e.”
It was the start of a beautiful friendship. Later that day, Gundlach went to her office and spent two hours describing his hardscrabble upbringing in Buffalo, N.Y.
“It’s not like we were buddy-buddy after that,” Baha said. “He’s not that kind of guy.”
Baha’s Spidey Sense
Yet they have built a relationship of mutual respect that now has him depending on Baha’s market calls. For example, her “Spidey sense” (DoubleLine analyst Loren Fleckenstein’s term for it) led her to suggest that Gundlach cut off DoubleLine’s trade with Lehman Brothers and MF Global before those two firms blew up.
Today, DoubleLine’s market capitalization is about $1 billion while another TCW offshoot, Howard Marks’ Oaktree—which serves as a role model to the folks at DoubleLine—counts $7 billion in market cap.
Meanwhile, TCW, which effectively lost its suit against Gundlach in 2011, was sold to the Carlyle Group in August 2012. “The transaction will conclude a lengthy sales process for TCW, which has some $130 billion in assets,” The New York Times’ Dealbook reported at the time. “Société Générale, which bought a controlling stake in TCW in 2001 for about $880 million, has been under pressure to raise additional capital and has been exploring the divestiture of noncore assets.”
As the dust settles on all the drama, DoubleLine’s reputation for growth is becoming established.
Robert Cohen, a credit analyst who will manage DoubleLine’s new floating rate fund with Baha when it launches later in 2013, joined the firm last summer after the TCW lawsuit was resolved. As far as Cohen was concerned, he was joining a company with a proven track record.
“I came in the glory days when DoubleLine was earning millions. I skipped all the drama,” Cohen said at The Palace breakfast. “All I know is that DoubleLine is successful and people are tripping over themselves to talk to us.”
Read What’s Jeff Gundlach Thinking? From the October 2012 issue of Investment Advisor magazine at AdvisorOne.