Swiss Investment Firm Dismisses Its Star Bond Manager

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Seven months after going into a tailspin, GAM Holding AG remains in damage control mode.

David Jacob took over as acting chief executive officer three months ago with GAM reeling from client withdrawals sparked by the suspension of bond manager Tim Haywood, who was dismissed Thursday. Since then he has cut jobs and merged teams, but his biggest challenge is to stop clients from pulling more cash out of the firm’s funds and there’s no guarantee that’s going to happen any time soon.

"We have to repair trust with clients," Jacob said in an interview Thursday. "When will we get back to net inflows? Hopefully over the course of the year, but it depends on the industry."

The ouster of Haywood for “gross misconduct” caps a tumultuous period for the Swiss firm. Investors have pulled about $16.3 billion from the company from the end of June and the shares have dropped about 70 percent since Haywood’s suspension in July. GAM is cutting 10 percent of its workforce and the board proposed slashing the bonus pool for executives by almost two thirds.

“I am being made a scapegoat in this process and intend to appeal this decision, which has been prejudged since the announcement of my suspension,” Haywood said in a statement on Thursday. “The overall employment process has been unfair in its application, failed to resolve conflicts of interest, left uncorrected errors in my assessment and is discriminatory in nature.”

“Restructuring work will be little comfort if GAM’s earnings power continues to shrink,” Citigroup analysts including Haley Tam said in a note following the company’s earnings release on Thursday. Still, they praised the company’s efforts in handling the absolute return bond funds once managed by Haywood as well as the move to limit executive pay.

Investors have fled GAM, cutting assets under management by almost 3 billion Swiss francs ($3 billion) since the end of November, the company said. Assets under management shrank by more than 26.5 billion francs over the whole of last year, the worst drop in a decade.

Staff Morale

Jacob said staff morale is one of his priorities and has held individual discussions with GAM’s top fund managers.

"People need to know that the firm is being managed in a way that’s focused on getting us out of this trough. I’ve gone to extra lengths to make sure that people are engaged with me," he said. Jacob is due to address employees in town hall meetings later today.

Regarding Haywood’s suspension, GAM said that there was "serious failure" to achieve the standard of skill and care that should be expected of someone in his position. Bloomberg reported the plan to dismiss him on Wednesday.

CEO’s Challenge

The bulk of client withdrawals so far have come in investment management, the company’s principal revenue driver. Clients pulled the most money -- about 5.4 billion francs over 2018 -- from fixed-income funds that include GAM Star Credit Opportunities and GAM Local Emerging Bond. Daily flows have improved in the first weeks of the year compared to December 2018, but institutional flows remain unpredictable, the company said in a statement.

“Fee pressure is very significant and is also mentioned in the outlook,” Vontobel analyst Andreas Venditti said in a note. “Coupled with lower starting AuM, we believe our (and consensus) revenue estimates are too optimistic. The divergence in analyst estimates for 2019 and beyond is huge.”

Clients Flee

GAM’s wounds aren’t all self inflicted. Across Europe’s ailing asset-management industry, open-ended funds lost 88 billion euros ($100 billion) of client money in the final three months of 2018, according to an estimate from Amundi SA. The whole of last year was rough for many funds amid unsteady markets and competition from cheaper passive strategies.

The stock swung between gains and losses in Zurich trading on Thursday and was up 3.4 percent at 3.73 francs as of 3:03 p.m.

GAM on Thursday reported a full year net loss of 929 million euros after the outflows forced it to write down the value of its business.

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