GAM Outlines Haywood's Alleged Breaches From Gifts to Signatures

(Bloomberg) -- The top bond manager suspended by GAM Holding AG may have breached due diligence requirements and signed contracts alone where two signatures were required, the company said.

Tim Haywood may have in certain instances failed “in GAM’s judgement, to conduct or evidence sufficient due diligence on some of the investments that were made, or make accessible internal records of documents relating to these,” the Swiss asset manager said in a Q&A published on its website Monday.

Haywood also breached the company’s gifts and entertainment policy by not seeking the required pre-approval and used his own personal email for work, GAM said. The fund manager’s honesty is not in doubt and there has not been a material impact on clients so far, the firm said.

GAM shocked investors last week by freezing withdrawals from $7.3 billion of funds which Haywood managed after a probe revealed issues with his risk management procedures. It’s been the latest setback after the firm said last month that first-half earnings were hurt by a charge related to worse-than-expected performance at its quant funds.

The company said today it didn’t find conflicts of interest in Haywood’s investment decisions, and the group’s financial stability remains strong.

Limited to Haywood

No employees other than Tim Haywood, who oversaw the firm’s 11 billion franc ($11.1 billion) absolute return bond strategy, are being investigated by GAM, the Swiss investment company said in a letter dated Aug. 2. Clients had rushed to pull their money from the products overseen by Haywood in the wake of his suspension, leading the firm to freeze redemptions at the funds.

“We realize that this development has been very unsettling for many of our clients,” Chief Executive Officer Alex Friedman and head of sales and distribution Tim Rainsford said in the Aug. 2 letter. “We will continue to do whatever is necessary to ensure our clients can continue to invest with us with confidence.”

GAM rose as much as 4.1 percent on Monday and was trading at 8.90 Swiss francs as of 2:05 p.m. in Zurich trading. News of the probe, combined with a warning that fund flows could turn negative later this year, caused GAM to decline by 24 percent last week, bringing declines this year to more than 40 percent.

Chairman Hugh Scott-Barrett hinted that the firm may be put up for sale when he said that the board of directors will consider “all avenues to optimize shareholder value.”

“No redemption requests for the suspended funds have been paid out since the announcement of Tim Haywood’s suspension,” GAM spokeswoman Elena Logutenkova said on Sunday. The issues “relate to his personal conduct rather than risk management across GAM.”

Funds overseen by the manager have underperformed peers on a three-year basis, primarily due to their positions on European interest rates and holdings in sterling in 2015.

“We will be vigilant in considering client detriment on an ongoing basis,” Friedman and Rainsford wrote in last week’s letter. “We now need to focus on internal disciplinary processes to establish if any further actions are necessary.”

GAM had already taken a hit in recent weeks when the firm said it would take a 59 million-franc impairment charge related to below expectations performance at Cantab Capital Partners, a quant hedge fund acquired by the firm in 2016.

To contact the reporters on this story: Neil Callanan in London at ncallanan@bloomberg.net;Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Sree Vidya Bhaktavatsalam

©2018 Bloomberg L.P.