On Monday Gam published a Q&A to its website to shed more light on the abrupt suspension of one of its top bond managers and the subsequent gating of his CHF 11bn (£8.5bn) unconstrained absolute return bond funds (ARBF), following a wave of criticism that the asset manager has left investors in the dark.
Its fourth piece of communication within the last week, the document addresses questions around liquidity, redemptions and the reasons for the firm’s investigation into Haywood.
The asset manager revealed that “in certain instances Haywood may have 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”.
But it said these investments were not prohibited by the respective funds’ mandates.
It also said he may have breached the firm’s signatory policy by signing contracts alone where two signatures were required, as well as the firm’s gifts and entertainment policy by not asking for required pre-approval and using his personal email for work purposes.
Gam communications to date inadequate
Monday’s Q&A is somewhat of a u-turn for Gam, which up until now has published scant detail on Haywood’s suspension.
Adrian Lowcock, head of personal investing at Willis Owen, told Portfolio Adviser Gam’s handling of the situation had been “panicky”. The lack of detail around Haywood’s departure “leaves a blackhole” that invites wild speculation, Lowcock said.
Ben Yearsley, director at Shore Financial Planning, was critical of Gam’s decision to leave investors in the dark in the days following Haywood’s suspension. He warned their silence during that period could erode trust among advisers and investors.
“It is in [Gam’s] interest to be as open as possible to ensure they don’t ruin ties with the adviser community,” he said.
“By keeping silent on things, you don’t create trust in your company and your brand. It’s a bit like Legal & General Investment Management last week. That’s what starts worrying people when something high profile happens – is this just a one off?”
Chief executive Alexander Friedman and group head of sales and distribution Tim Rainsford wrote to clients last Thursday that the investigation found Haywood did not depart from a “legitimate investment strategy”.
The pair confirmed the investigation was primarily related to investment decisions with the ARBF funds and that no other employees were being investigated by Gam. They added that Haywood’s actions have not resulted “any material client detriment to date”.
ARBF liquidity
Yearsley said Gam’s Q&A update on Monday provided “a reasonable amount of clarity” for investors.
“I suppose at this stage that is about it until they conclude their process with regards to his future employment,” he said.
While Lowcock found Gam’s remarks on liquidity to be clearer, he noted there was still room for improvement.
“This is basically saying that some of the portfolio is liquid but not all of it,” said Lowcock. “In fact from this I would understand that the redemption requests would have to be taken out of a specific area of the portfolio which is highly liquid and couldn’t be spread significantly across a wider range of assets which would reduce the impact on the portfolio structure.
“I don’t think there is anything wrong with what they are trying to do, but they need to be clearer on it. Liquidity is of course an issue but better to be open about it.”
Haywood successors
Lowcock said strategic succession planning will be crucial for the Swiss manager moving forward.
Gam has previously confirmed investment directors Jake Flaherty and Alex McKnight will step in and assume responsibility for the ARBF funds and associated portfolios. Flaherty has been one of the co-managers of the ARBF strategy for more than six years, while McKnight has been described by the firm as a “key member” of the team for the past 11 years.
It said that Flaherty and McKnight are supported by 18 other investment professionals and confirmed it will be recruiting additional portfolio managers.
Although neither manager has Haywood’s level of brand recognition, Lowcock stressed continuity will be more important for investors.
“The point for investors is having an experienced team who know the fund and are positioned to ensure the fund can continue to be run in the same manner and any redemptions can be meet as quickly as is reasonable,” he said. “Looking at the two individuals I think Gam have got that here.”
In Monday’s Q&A, Gam did not comment on whether or not Haywood would be reinstated. The firm said he remains an employee of Gam and the matter is being handled by the internal disciplinary processes.
