GAM interim CEO David Jacob has said the firm continues to be open to 'all strategic options', including a sale of the business, as it fights to recover from a year which saw over CHF10 billion (£7.63 billion) of client outflows.
When asked during its annual results call whether the Swiss asset manager is in negotiations to find a buyer, Jacob told Wealth Manager: ‘The board mentioned in the middle of last year that they were looking at all strategic options to maximise shareholder value. That statement hasn’t changed, that is the board’s obligation in any event.
'I can tell you that management, and the board to a large extent, is very much focused on the priorities that I outlined [in the results], particularly rebuilding the trust of our clients, bringing the business back to strength and [cutting CHF40 million in costs].’
He also said that the search for a new chief executive is continuing, but he will be staying in the role in the near term to maintain stability in the business.
It was reported in October that the firm was in early stage discussions with a number of potential buyers.
That came after Credit Suisse analyst Tom Mills questioned in late August whether the business had the resilience to continue as an independent entity, estimating reputational damage could halve its earnings by 2020.
Stating that GAM is striving to be candid with investors, Jacob admitted in the call that the summary of the firm’s 2019 results ‘does not make for easy reading’, and said ‘2019 net profits will be materially below those of 2018.’
The firm plans to reshape itself around four areas where it determines it has competitive advantages: packaged and bespoke solutions, fixed income, quantative analysis and equity investments.
Its recovery strategy is focused on improving fund performance, finalising the liquidation of its Absolute Return Bond fund, delivering CHF 40 million in cost savings by the end of 2019 and stabilising the business and rebuilding trust.
A 'very challenging year'
More than CHF10 billion in client funds was pulled from GAM in 2018 as it struggled to contain the damage inflicted by the suspension of star Absolute Return Bond manager Tim Haywood, who has now been dismissed.
The outflow excludes the damage inflicted by Haywood's suspension in August, after he was accused of breaking inducement and dealing rules.
At the market open, shares in GAM were 8.5% lower at CHF3.31, close to the record low of mid-December, but in intensely volatile trading the shares snapped back within 15 minutes to trade just 1.3% down on the day, at CHF3.56.
Including the CHF11 billion liquidation of his fund range and sharp market losses, group AUM tumbled almost CHF30 billion to CHF56 billion last year.
Jacob acknowledged that there has been no further progress in the liquidation of the fund since the last month of 2018, citing volatile market conditions in November and December.
He said around 70% of assets in the offshore payment funds and 90% in the onshore Ucits funds have been liquidated, with the firm aiming to sell the remaining assets over the 'next few months', subject to market conditions.
With the group also already facing the higher costs of Mifid II, the 2017 profit of CHF123 million slumped to a CHF929 million loss last year. The asset outflows were far bigger than modelled by analysts and are likely to raise further speculation about the group’s viability, after initial talks last year appeared to go nowhere.
Jacob who was brought in to tidy up the business last autumn, said: ‘2018 was a very challenging year for the asset management industry in general and for GAM in particular, given the difficult decisions we had to make around ARBF and the impact it has had on our results.
‘We are repositioning GAM to build on the strong investment expertise we have in our business, with a distinct set of strategies that are relevant for client needs and a global distribution network to support our client relationships.
‘A simplified business structure and more efficient processes will enable us to focus on areas of strength as well as allowing us to further enhance our control environment. This will help us to improve profitability and restore long-term shareholder value.’
The net loss included a massive CHF883 million impairment charge that ‘recognised due to lower levels of forecast AuM and profitability’.
The company said following an investigation it had dismissed Haywood for ‘gross misconduct’, saying it had identified a ‘serious failure to achieve the standard of skill and care which were to be expected of someone in his position’.
The group has suspended its dividend and mid to long-term targets as it sought to put the company on a stable basis.
While the business has yet to see the gains of the CHF40 million cost saving drive, the size of the fund outflow dwarfed the levels that Credit Suisse expected to be tolerable, in a highly critical note last year, saying anything above £6 billion out of non-ARBF funds would be considered dangerous.
‘For context, it should be noted that almost all listed European asset managers have seen their net flows turn negative in 3Q18-to-date (according to EPFR data), and so GAM is not alone in this regard, but the quantum of outflows (excluding ARBF) does appear to be at an elevated level versus peers,’ it said.
‘We think GAM’s viability as a standalone company would be less straightforward [if clients exited] and that were signs of that magnitude of franchise erosion to become apparent, then we think the board would be highly motivated to try to sell the business.’