In split from SocGen, TCW's fortunes seen set to rise

NEW YORK Thu Aug 9, 2012 5:42pm EDT

The logo of Societe Generale bank is pictured during a news conference to present the bank's 2011 annual results in La Defense near Paris February 16, 2012. REUTERS/Charles Platiau

The logo of Societe Generale bank is pictured during a news conference to present the bank's 2011 annual results in La Defense near Paris February 16, 2012.

Credit: Reuters/Charles Platiau

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NEW YORK (Reuters) - Societe General (SOGN.PA) on Thursday agreed to sell its stake in asset manager TCW Group Inc to private equity firm Carlyle Group LP (CG.O) and TCW management and employees, clearing up questions over TCW's ownership and putting it on track to be a more formidable competitor against some of the largest bond managers.

Financial details were not disclosed. People familiar with the matter told Reuters last month a deal could value TCW at about $700 million.

Carlyle will own 60 percent of TCW, and the collective ownership of TCW employees and management will rise from 17 percent to 40 percent.

Paris-based SocGen had initially bought a 51 percent stake in TCW for about $880 million, and later increased its holding. Amundi, an asset management joint venture of SocGen and Credit Agricole Sa (CAGR.PA), owned 20 percent. Amundi also agreed to sell its stake.

In 2009, TCW fired well-regarded bond fund manager Jeffrey Gundlach and on the same day said it would acquire Los Angeles-based Metropolitan West Asset Management.

Gundlach went on to start DoubleLine, which currently has $40 billion in assets.

Although institutional investors, including pension funds, foundations and endowments, had initially embraced the decision to buy Metropolitan West, months of reports that SocGen was going to sell TCW had left clients on guard. At that time, TCW's assets under management stood at $110 billion. Assets now stand at $131 billion.

Investors are more likely to put new money with TCW now that the "era of uncertainty" around the future of the firm is gone, fund researchers said, citing months of reports that Societe Generale was going to sell TCW.

TCW's competitors include Allianz's (ALVG.DE) Pimco, DoubleLine Capital and Legg Mason's (LM.N) Western Asset Management.

"I think it will be somewhat easier for them to win institutional business now that their ownership will be less ambiguous," said Eric Jacobson, director of fixed-income fund research at Morningstar. "Ownership uncertainty is the kind of thing that often puts off institutional clients."

TCW has offered all of its portfolio managers equity stakes in exchange for five-year contracts, a deal accepted by managers overseeing 90 percent of the firm's actively managed assets. "That creates a lot of more stability for investors," Jacobson said.

The sale of TCW is expected to close in the first quarter of 2013, the parties said.

David Lippman, the head of fixed income at TCW, will become the firm's president and chief executive officer, and Chief Executive Marc Sternwill become chairman.

Carlyle's private equity investment is to be made through its $13.7 billion U.S. buyout fund and its $1.1 billion financial services fund.

In the wake of Europe's sovereign-debt crisis, SocGen and other banks have bolstered capital to prepare for the introduction of tough new capital and liquidity rules known as Basel III. SocGen, France's No. 2 listed bank, said on Thursday that the sale of TCW, once closed, would lift its core Basel III capital ratio by 13 basis points. The bank has previously said it was aiming to boost the ratio to between 9 percent and 9.5 percent by the end of next year.

"Societe Generale's problems are the problems that exist in Europe and European banking and really have had absolutely no impact on our business," TCW's Lippman said. "At no point have we ever relied on SocGen, the business of TCW has always been quite independent from that of SocGen. We don't believe there's a lot that needs fixing at TCW."

When TCW purchased Metropolitan West Asset Management, Tad Rivelle, another widely regarded fixed-income manager and long-time competitor of Gundlach's, was named TCW's chief investment officer of fixed income. "He is the Bill Gross of TCW," added Jacobson. Gross is the co-chief investment officer of Pimco, the world's biggest bond fund.

Lippman brushed aside any issues of competing against Pimco. "I think Bill Gross runs a complex that is, you know, approximately $1.7 trillion in assets under management," he said. "I'm sure he's not very concerned about his business (with regards to competition from TCW), and frankly we focus more on our own business."

Unlike Pimco, TCW has a "strong line" of equity funds as well as fixed income, said Neil Bathon, managing director at Fuse Research, a Boston-based fund marketing consultant.

More than half of TCW's 14 equity funds with five-year track records have outperformed their peers, while six of the nine equity funds with 10-year track records have done so, according to Morningstar Inc.

Jacobson said the challenge for TCW going forward is merging its disparate cultures.

Todd Petzel, chief investment officer for Offit Capital, which manages over $5 billion for wealthy investors and has an investment in one TCW bond fund, said he expects the firm's portfolio managers to have the control over the investments and strategies as they had when SocGen owned the money management firm.

(Editing by Steve Orlofsky, Bernard Orr and Leslie Adler)

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