Gam’s investment arm has seen assets under management shrink by a fifth since the suspension of one of its star managers Tim Haywood and the liquidation of his multi-billion pound fund range as contagion fears wreaked havoc on its other strategies.
Assets in its investment arm dropped by 21% to CHF66.8bn (£51.5bn, $66.9bn, €58.3bn) from CHF84.4bn in the third quarter driven by net outflows of CHF8.5bn. Total assets for the group were down 10.8% from CHF163.8bn to CHF146.1bn.
Fixed income was the biggest loser, ending the period with net outflows of CHF2.6bn, followed by equity (CHF1.1bn) and multi asset and absolute return (both at CHF700m).
The liquidation of Haywood’s absolute return bond fund (ARBF) range, which began in the period, accounted for nearly 40% of total net outflows at CHF3.2bn.
Haywood saga a ‘clear setback’
Gam’s shares plunged 19% on the news, sinking below CHF6 per share, the lowest point in its nine-year trading history on the SIX Swiss Exchange.
Group chief executive Alexander Friedman admitted that Haywood’s suspension and subsequent liquidation of one its most profitable fund ranges “marked a clear setback for Gam” and has had far-reaching consequences for the firm. But he said that, from October, the group had seen an “improving flow trend” with “net outflows diminishing”.
Haywood’s range had been a staple of Gam’s core offering for many years and was one of its largest strategies, standing at CHF11bn (£8.5bn).
It was also highly profitable for the business as one of the asset manager’s higher margin strategies with an average 61.69 basis point management fee margin.
“We are taking immediate and near-term measures to support Gam’s profitability,” Friedman continued. “We have a stable and diversified business that we continue to build upon and we remain fully focused on delivering the investment returns expected by our clients.”
Outflow contagion worse than feared
Even discounting the CHF3.2bn hit to assets from the ARBF liquidations, the damage to AUM and the net outflows exceeded analyst estimates.
Excluding the ARBF range, the investment management division saw net outflows of CHF5.3bn in the three months to 30 September 2018.
Total outflows over the period were CHF16.2bn or CHF13.9bn excluding post-September liquidations. This was CHF2.6bn worse than the forecast from analysts at Citi and exceeded the total outflows they were predicting for the group over the entire second half of the year (CHF13.3bn).
“The scale and spread of outflows is worse than expected, so consensus AUM and earnings downgrades look likely,” the group said in an analyst note, adding that “Gam’s ability to maintain peer group (2019 earnings) average […] also looks under pressure, near-term”.
Citi said there were “no positive surprises” in the downbeat update, which provided “few answers” to key questions like whether Gam can stem outflows or might be the subject of M&A activity?
It currently rates Gam as ‘neutral/high risk’.
Gam silent on potential takeover
Gam remained tight-lipped on whether it is currently in talks with rivals to sell the business.
The Swiss manager’s woes have weighed heavily on its share price, leaving it vulnerable to a potential takeover. Year-to-date, it has seen 63% wiped off its share price.
Rumours swirled earlier this month that rival asset managers were eyeing up the beleaguered business. A Bloomberg report claimed that the Swiss fund group was in early-stage negotiations with potential buyers for part or all of the business.
The fund group also provided an update on the timeline of the winding-up of Haywood’s ARBF range.
So far, Gam has returned between 82% to 91% of assets in the Luxembourg and Irish-domiciled Ucits funds, and 66% to 72% of the assets in the Cayman and Australian feeder funds.
In its Q3 update, Gam said remaining assets will be liquidated in the coming months depending on market conditions. It also expects to make further disbursements to investors in the fourth quarter this year.