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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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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