GAM is liquidating $7 billion worth of bond funds. The move, following a fund manager scandal and an investor rush for the exits, raises questions over the company's future.
Zurich-based GAM told investors it would liquidate more than 120 absolute return bond funds, in a statement posted to its website on Friday.
Investors had clamored to get their funds back after GAM suddenly suspended star portfolio Tim Haywood (pictured below) for what it termed breaches of record-keeping and risk management rules.
GAM argued the move is the best avenue for clients. «We believe that this decision underscores our commitment to treating all clients equally and fairly and to ensuring that investors receive proceeds in a timely manner», GAM's head of sales and distribution, Tim Rainsford, said in an emailed statement to finews.com.
Cash Back, in Time
The liquidation of more than $7 billion, which follows the funds' gating last week, translates into a last resort measure for GAM. It also raises serious questions over the asset manager's future.
«Despite the short-term implications of these liquidations for GAM, our decisions continue to be guided by what’s best for our clients,» he added. CEO Alex Friedman (pictured below) didn't comment. Shareholders in the fund should receive their share, in cash, as liquidation proceedings go on, GAM said.
Mired in Mystery
The reason for the fund shutter is still steeped in mystery. GAM said Haywood, the well-known and long-standing manager of GAM's flagship absolute return bond funds, was suspended over gifts and perks without asking the company beforehand, and for using his personal email for work purposes.
GAM has lost nearly one-fifth of its market capitalization since the suspension last week: Haywood's absolute return bond business is a hefty earner for GAM: More than half of the assets managed – 6.2 billion francs ($6.24 billion)– are eligible for performance fees.
Slap on Wrist vs Boot
Haywood's very public suspension represents a highly unusual step. Travel, gifts, and personal email use would typically rank as a misdemeanor in the annals of financial scandals: more likely to warrant a slap on the wrist, not a public investigation involving an outside law firm, as is the case with GAM.
GAM has said Haywood didn't appear «motivated by an improper rationale in making investment decisions» – meaning he wasn't found to be crooked. Nor did the company uncover any conflict of interest. Haywood hasn't spoken publicly about the events.
GAM Vulnerable
The scandal comes at a vulnerable time for GAM: CEO Friedman was forced to issue a profit warning last month after writing down 59 million francs on Cantab, a mechanical trading firm in Cambridge's «Silicon Fen» tech hub that the Swiss firm acquired two years ago.
A similar case at Gartmore over fund manager Guillaume Rambourg tipped the U.K. asset manager into crisis and – one year later – into a sale to rival Henderson. Rambourg was later exonerated of wrong-doing by the U.K. regulator, and now runs a Paris-based fund manager-turned-family office he set up in 2011.
