Updated Wednesday, April 16, 2014 as of 9:33 AM ET
Portfolio - Fixed Income
Gundlach Expecting Kaboom of Defaults
by: Seth Lubove and Alexis Leondis
Friday, November 30, 2012
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Gundlach’s quarrel with TCW began when the firm appointed then-Vice Chairman Marc Stern as chief executive officer over the objections of Gundlach and four other executives. They wanted to form a management committee to lead the firm. A TCW spokesman declined to comment for this story. Both the TCW and Gundlach lawsuits were settled in a confidential agreement at the end of 2011.

Art Passion

One subject the money manager is happy to talk about is art. His passion is on display throughout DoubleLine’s offices, with many of the paintings from his personal collection hanging on the walls.

In designing DoubleLine’s logo, Gundlach borrowed from Mondrian, the abstract Dutch artist whose career spanned almost five decades until his death in 1944. His works are characterized by grids of black lines, white space and rectangles in primary colors.

Gundlach began buying valuable art in the 1990s, favoring what he calls pretty pictures of landscapes. In 2002, he went to the Tate Modern in London and wandered into a room where he saw a Mondrian and had an aha moment. It was the first abstract work that he truly appreciated.

“I got it,” he says, snapping his fingers. “I was like, ‘I really like this thing.’”

Gundlach’s Painting

Gundlach says he likes how Mondrian’s paintings express balance without symmetry and achieve the elimination of figure and ground.

“They seem to exist at the scale of a galaxy,” Gundlach says. “Mondrian is able to capture the infinite and the finite.”

Today, visitors stepping off the 18th-floor elevator at Gundlach’s offices are greeted by a painting inspired by Mondrian that the money manager himself created. It features double black lines on a white background with a blue rectangle.

“My problem is, I’m too much of a perfectionist,” Gundlach says of the Mondrian-inspired pieces he’s made. “Mine are more perfect than the real ones.”

For all his braggadocio, Gundlach has a strain of humility, especially when it comes to his employees, corporate bond manager Baha says. In its early days, DoubleLine’s existence was threatened, as the TCW lawsuit and its potential liabilities scared away institutional investors, she says.

Fighting Tears

Fighting back tears, Gundlach stood before his staff of about 40 people and told them he felt responsible for their careers after they had left TCW to start DoubleLine, she says.

“He said he would walk if he proved to be a liability,” she says. “His firing made him more appreciative of family connections, friendships, people who stuck with him.”

Gundlach was forced to build his firm with retail investors, who were pouring into bond funds after the S&P 500 Index closed at 676.53 in March 2009, a 12-year low.

“We needed to show success quickly because of the litigation,” says Ronald Redell, president of DoubleLine Funds Trust, which offers funds to investors.

DoubleLine got help from Howard Marks, another former TCW star, who left the firm 17 years ago with four other distressed- debt experts to start Oaktree Capital Management LP. Oaktree, with $81 billion in assets as of September, bought a 22 percent stake in DoubleLine for an undisclosed price and assigned 60 of its people to help set up the firm’s back office and other support functions.

Under Attack

“Since we had started a firm ourselves, the founders of DoubleLine enlisted our help in their startup,” Marks says. “When you are under attack, you’ve got to take extra steps to make it 100 percent certain you won’t make a misstep.”

Whether three-year-old DoubleLine continues to thrive will rest largely on the investment instructions that Gundlach gives to his senior portfolio managers. They all debate the broad investment categories in which DoubleLine will place its bets during monthly asset allocation meetings in the Warhol conference room, named after the flamboyant pop artist.

Gundlach acts as the final judge, signing off on the percentages of investments of particular assets for the firm’s funds. Once he settles on a strategy, Gundlach leaves it up to his managers to execute the trading, with oversight but little interference.

“He’s very much hands-off,” Padilla says. “Once that allocation is made, he says, ‘You manage that portion.’”

Stolen Artwork

Hands-off, though, isn’t normally the first description that comes to mind when discussing Gundlach. In mid-September, thieves robbed the money manager’s Santa Monica home in a quiet residential neighborhood, taking more than $10 million in artworks as well as his red 2010 Porsche Carrera 4S, wine and watches. The robbers also snatched two works by Gundlach’s late grandmother, Helen Fuchs, who was an amateur painter.

The money manager first offered $200,000 for tips leading to the recovery of his art and days later boosted the reward to $1.7 million. Santa Monica Police Department Sergeant Richard Lewis says the large sum of money was key to cracking the case, which the Federal Bureau of Investigation assisted on.

In late September, two suspects were arrested and all of the stolen art was recovered.

The cerebral Gundlach also gave investigators a tip for solving the crime. He says that while he was at home in his family room, it dawned on him that thieves would do a Google search using his grandmother’s name to find out more about the paintings and how much they might be worth.

Gundlach told the authorities that they should check the Internet to see who might have googled the name Helen Fuchs. He says exactly two such searches were executed: one by him and one by the thieves.

Gundlach says his Internet idea impressed investigators.

“The FBI,” he says, “thought it was brilliant.”

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