Greensill Crisis of Confidence Worsens as GAM Winds Down Fund

Greensill Capital lost another longtime ally after GAM Holding AG said it’s ending dealings with the firm, further increasing pressure on founder Lex Greensill as he races to stave off insolvency.

The Swiss asset manager will begin shuttering its $842 million GAM Greensill Supply Chain Finance Fund and return investors’ money in the latest sign of the crisis of confidence hitting Greensill’s niche financial firm. Credit Suisse Group AG on Monday said it froze $10 billion of Greensill-linked investment funds, citing uncertainty about the value of some of the holdings. SoftBank Group Corp.’s Vision Fund, once a key backer, now thinks its $1.5 billion holding in the firm may be worth close to nothing.

Greensill Crisis of Confidence Worsens as GAM Winds Down Fund

The upheaval is rapidly escalating into a fight for survival as Greensill seeks to navigate a rescue that will avoid a slide into insolvency while keeping parts of the business alive. At the heart of the swift unraveling at the firm -- which specializes in a loosely regulated type of short-term corporate lending -- are questions about the creditworthiness of his borrowers and loans tied to a single U.K. entrepreneur, Sanjeev Gupta.

In a sign of just how serious the firm’s predicament has become, Greensill has made use of so-called “safe harbor protection” under insolvency laws in its home country of Australia, according to a person familiar with the matter. That buys directors more time to work out alternative financing as it protects them from personal liability for insolvent trading.

The firm’s fall from grace has been swift: as recently as late last year, Greensill was talking up its growth plans, seeking a valuation of $7 billion and eventually planning to go public. Now, options have narrowed to include insolvency and the potential sale of its operating business to Apollo Global Management Inc., according to people familiar with the matter.

GAM, which has been working with Greensill for about the past five years, was prompted to take action after a major investor asked for their money back, people familiar said. In order to treat investors fairly, GAM decided to wind down the funds and return capital to investors rather than just to the one client. In contrast to Credit Suisse, the firm said there were no concerns regarding the valuation of the assets.

“We have taken the decision to close our Supply Chain Finance fund as we believe this is in the best interests of all clients in the fund,” GAM Chief Executive Officer Peter Sanderson said in the statement. “We anticipate an orderly fund liquidation and return of client assets in the normal course.”

For money managers piling into niche markets in search of higher yield, the episode is yet another reminder of the risks inherent in hard-to-value assets. The demise of Neil Woodford’s investment firm and a crisis at H20 Asset Management were triggered by their holdings of unlisted companies and unrated bonds. While Credit Suisse’s funds aren’t targeted at mom-and-pop investors, many larger clients are becoming increasingly nervous about holding assets whose value is tough to determine.

The unraveling caps three tumultuous years at the firm founded by the 44-year-old financier. Greensill-linked financings also played a role in the demise of a former star bond manager at GAM in 2018. Last year, Germany’s banking regulator BaFin pushed the businessman’s lending unit, Greensill Bank, to reduce risks on its balance sheet by cutting loans tied to Gupta.

Greensill rose from working on his family’s melon and sugar cane farm in Australia. His interest in the supply-chain business was fueled early on in his life, when as a teenager, a bad harvest season meant his parents weren’t paid for the crops that they grew. Greensill later built a business at Morgan Stanley in London financing corporate supply chains, and then worked at Citigroup Inc. before starting his own company in 2011.

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