October 23, 2018 / 8:13 AM / 21 days ago

GAM assets slump 17.7 billion francs after director suspension

ZURICH (Reuters) - Money manager GAM Holding AG (GAMH.S) suffered a 17.7 billion Swiss francs ($18 billion) slump in the value of its assets after the suspension of a top asset manager prompted investors to withdraw billions of francs from its funds, the company said on Tuesday.

Shares in the Swiss-based group slid more than 14 percent to 6.2 francs in early trade, hitting their lowest level in nine years. They had traded as high as 18.18 francs in January.

Investors withdrew a net 8.1 billion francs in the third quarter after the group suspended absolute return bond fund (ARBF) director Tim Haywood while it investigated possible misconduct.

It also liquidated 7.7 billion francs in funds he managed, and together with usual market effects, group assets under management fell overall by 17.7 billion francs to 146.1 billion as at Sept. 30.

GAM suspended Haywood in July after questions arose about whether he failed to conduct sufficient due diligence and make accessible some internal records, sparking an investor exodus and hammering its shares.

“The consequences of the suspension of an ARBF investment director marked a clear setback for GAM,” Chief Executive Alexander Friedman said in a statement on Tuesday.

“We are taking immediate and near-term measures to support GAM’s profitability,” Friedman added. “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.”

In a telephone interview, finance chief Richard McNamara told Reuters: “We still saw net outflows in the first three weeks of October but ... we saw a significant change in the trend compared to what we reported for Q3”.

Vontobel analyst Andreas Venditti said assets under management were clearly below his bank’s estimate.

“Profit estimates are likely to decline but we need more information on the actual amount of planned near-term cost actions to assess the impact,” Venditti said.

FIERCE CRITICISM

Asked about reports that GAM was speaking to potential buyers, Friedman told Reuters the company remained open to all avenues that maximize value, but declined to elaborate.

Friedman, who has faced fierce criticism from some investors about his handling of the matter, insisted GAM had acted properly to address potential misconduct even at the cost of short-term disruption.

He said he remained “100 percent committed” to his job but ultimately his position was up to the board.

Friedman added the group’s long-term financial targets remained valid. He and McNamara declined to forecast the company’s 2018 results or discuss its potential dividend.

GAM targets an operating margin of between 35 and 40 percent and annualized EPS growth or more than 10 percent over the business cycle.

GAM has begun liquidating nine funds with assets of 10.8 billion francs whose trading it halted after suspending Haywood. Investors so far have been getting all their money back, company officials said.

The group has said its decision to suspend Haywood was prompted by a tip from an internal whistleblower. Haywood has not responded to requests for comment.

GAM has said Haywood may have breached the company’s policy on the number of signatures required on documents, used his personal email for work purposes, and violated the company’s gifts and entertainment policy.

Additional reporting by Michael Shields; Editing by David Holmes

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