Gam deemed tough sell as buying speculation heats up

Specialising in niche areas could limit Swiss manager’s appeal

Speculations abound that Gam is hunting for potential buyers to snap up the business as it looks to put a scandal involving its mega absolute return range behind it, but commentators suspect the beleaguered fund group will be a tough sell.

The Financial Times and Bloomberg have reported that the Swiss manager has hired investment banking advisers JPMorgan Chase and Citigroup and is exploring its options including a potential sale of the business which is now worth CHF 698.1m (£529.9m).

7IM senior portfolio manager Peter Sleep said the fact reports suggest Gam is trying to find buyers rather than have potential acquirers knocking on its door is telling.

And with the firm still reeling from the sacking of star manager Tim Haywood and the liquidation of his £8.5bn Absolute Return Bond Fund (ARBF) range, one of its most popular product lines, he thinks finding a willing buyer could be difficult.

“I would imagine Gam would have to appear to be more stable that it is at the moment for anyone to take them on,” he said.

“At the best of times, an asset manager acquisition tends to put new business on hold and lead to outflows. The SLA merger shows the pitfalls of merging with a company (SL) with outflows, but the difference here is that it was a friendly merger and there were no significant regulatory issues as we have with Gam.”

Ryan Hughes, head of active portfolios at AJ Bell, agrees that it will be difficult for Gam to shake its “tarnished” brand in the short term.

Doesn’t tick the boxes

Additionally, he said Gam doesn’t tick the main boxes that make an attractive target company like having a “world class team”. It has “pockets of excellence” in niche areas on the fixed interest side and a handful of standout managers, notably UK equity income star Adrian Gosden. But Hughes said it is difficult to pinpoint areas of core competence for the firm as a whole.

“You struggle to really put them in the top bracket for lots and lots of different asset classes.”

Hughes said the fact Gosden’s fund has only raised £150m despite his star power is likely an indication the ARBF scandal “may have dissuaded a few people from taking a closer look at that strategy”.

Sleep added that another reason to buy a firm like Gam, its strong client relationships, also looks less appealing.

“I think Gam has just alienated many of their clients, which can be seen in their continued outflows. A lot of the fund selectors and consultants will have been very embarrassed by the revelations at Gam and their poor handling of the situation.”

Staff retention will be key

Sleep thinks potential buyers would probably need to be a large, listed investment firm themselves. They would also need deep pockets to ensure retention of key staff members.

Employees’ long-term incentive plans are linked to the performance of Gam’s share price which is currently trading near an all-time low following the ARBF scandal.

“Nearly all stock options and long-term incentive plans are under the water, so any acquirer may have to factor in a high cost to keep the Gam people in place,” said Sleep.

Niche and small is not interesting

Gam does have several “hot areas” that could be of interest to a buyer, said Sleep, namely specialist areas that cannot be replicated by a passive fund such as mortgage-backed securities, EM debt, private debt and systematic equity.

But specialising in niche areas could limit Gam’s appeal to certain buyers.

“The difficulty of course is these niche areas tend to remain niche areas and so they’re not big asset gatherers,” said Hughes. “When you see consolidation in the asset management space at the moment it’s about asset gathering rather than getting interesting products and complementary products,” said Hughes. “Niche is interesting but if it stays niche and small it’s not interesting and that might be something that puts off any potential suitors.”

Gam declined to comment for this story.

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