Explaining Southern California's economy

DoubleLine Capital's Jeff Gundlach says housing recovery has a ways to go (Chart)

DoubleLine Capital's CEO, Jeff Gundlach, doesn't see a robust housing recovery in 2013, the "Year of the Snake."

DoubleLine Capital's Jeff Gundlach presented his 2013 market outlook on Tuesday. DoubleLine, based in Los Angeles, is a fast-growing financial start-up. It has amassed more than $50 billion in assets under management (AUM) since CEO Gundlach left rival TCW — also L.A. based — in 2009, under controversial and eventually litigious circumstances. 

With Newport Beach based PIMCO, DoubleLine and TCW form what I call a Southern California "bond triangle" — together the trio manages more than $2 trillion, dealing mostly with fixed-income investments (although PIMCO and DoubleLine have been edging toward equities as a greater portion of their portfolios).

Add in Pasadena-based WAMCO, with $450 billion under management, and you have a constellation of bond funds with portfolios that surpass the annual economic output of the entire state of California, which is about $2 trillion.

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In SoCal's Bond Triangle, the Carlyle Group hits some trouble

TCW-Getty

Getty Images

The Carlyle Group, a huge private-equity firm, has hit snag with its purchase of a majority stake in TCW, one of the big bonds finds headquartered in California.

Reuters ran a dense "exclusive" Monday about some financial gyrations that are making potential trouble for private-equity colossus the Carlyle Group's deal to buy a chunk of TCW, one of the biggest bond funds in the world and a part of what I call the Southern California Bond Triangle. It also includes PIMCO and DoubleLine Capital.

PIMCO is the biggest bond fund in the world, with $1.8 trillion under management. TCW has around $135 billion on its books. DoubleLine has been growing at a furious pace since CEO Jeff Gundlach established it after a controversial departure from TCW. It has taken on nearly $50 billion in under three years. 

You could also throw Pasadena-based WAMCO in there, creating a Bond Quadrangle. WAMCO has around $450 billion under management and has tried in recent years to regain its competitive mojo versus PIMCO.

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For a guy who just had $10 million in art and his Porsche ripped off, Jeff Gundlach was impressive on CNBC

Porsche-Carrera-4S

Porsche

SoCal's new bond king, Jeff Gundlach, is missing one of the these: a 2010 Porsche Carrera 4S. Along with $10 million in art and a few bottles of wine.

There are three big names in bonds these days, and they're all in Southern California. Together, Bill Gross and Mohamed El-Erian run Newport Beach-based PIMCO, the world's largest bond fund, overseeing a jaw-dropping $1.8 trillion in assets. Meanwhile, former '80s rocker Jeff Gundlach has been coming on strong in the past year.

His L.A. firm, DoubleLine Captial, has grown significantly, with now more than $40 billion under management. Gundlach's old firm, TCW (which he left in a cloud of controversy in 2009), is also in the news: It's being bought by the Carlyle Group, one of the world's biggest private equity firms.

PIMCO is in the midst of much speculation about whether El-Erian will be able to run the find as effectively as Gross once Gross decides to call it quits. This has created plenty of opportunity for Gundlach, who was already well known for his ability to make piles of money, to position DoubleLine as a better, faster PIMCO and a smarter, punkier TCW. Back in May, Businessweek's Roben Farzad captured the meteoric ascent of DoubleLine, which has gone from zero to $40-ish billion since 2010, and Gundlach, the new "bond king."

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PIMCO's Bill Gross will have to retire to play golf again

AT&T Pebble Beach National Pro-Am - Round One

Jeff Gross/Getty Images

Bill Gross, CIO of PIMCO, hits a shot during the AT&T Pebble Beach National Pro-Am at the Spyglass Hill Golf in 2012. Let's just hope co-CIO Mohamed El-Erian wasn't watching.

Two of the most generously compensated money managers in the world labor just down the road from Los Angeles, at Newport Beach bond colossus PIMCO, which oversees a staggering $1.8 trillion in assets. Co-Chief Investment Officers Bill Gross and Mohamed El-Erian make, respectively, $200 million and $100 million a year.

At least according to Geraldine Fabrikant's recent profile of (mostly) El-Erian in the New York Times. As Felix Salmon notes in a post that has now provoked some debate, Reuters reported last year that Gross and El-Erian were only making $33 million each. Then, as now (Felix checked), PIMCO disputes these figures. But Felix doesn't think they're totally out of whack, at least where Gross is concerned:

Certainly that kind of payday is within the realms of possibility, given that his firm manages $1.8 trillion, and his Total Return Fund has $263 billion under management: $200 million is just 0.01% of the former, or 0.08% of the latter. On the long-only buy side, the way you get paid for performance is that your performance attracts new money, and the new money pays management fees. And so long as Pimco’s assets under management are going up rather than down, I can see how Gross’s pay might do likewise. But still.

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DeBord Report sits down with Idealab's Bill Gross

Idealab

Michael Juliano/KPCC

Matt DeBord talks with Idealab founder Bill Gross.

I've written about Idealab, a well-known incubator in Pasadena, before. I've even visited the place and taken pictures! But I hadn't ever had the opportunity to sit down with founder and CEO Bill Gross. KPCC's crack video crew and I recently rectified that.

Gross is a compulsive inventor and entrepreneur — and one of Southern California's true business leaders. He started his first company in high school, selling solar energy kits. He then created a few more companies before founding Idealab in 1996.

Idealab has gestated numerous companies, including Citysearch, Picasa, and Shop.com. It's kind of tucked away on the northern edge of Old Town Pasadena, but it has an influence far beyond the Southland. Both because the incubator concept has become increasingly important for the startup ecosystem, as investors become much more discriminating about the maturity and potential of companies they want to invest in; and because Idealab is working on some projects that could have a significant impact on well-being in the developing world.

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