Gam is predicting a substantial loss for 2018 and warns its results for the following year will be “materially lower” following a radical overhaul of the business.
The Swiss manager said in a profit warning ahead of its fourth quarter update that it would be incurring a CHF925m (£737m) loss for 2018, after taking into account massive writedowns including its acquisition of a UK-based hedge fund. This is compared with a profit of CHF 123.2m for 2017.
It said that assets under management for the whole group were at CHF139.1bn (£110bn) by 30 November, down from CHF146.1bn at the end of the third quarter.
It said that given the significantly lower average AUM and revenues expected for 2019 compared to 2018, and with the savings related to the restructuring programme only fully reflected in the 2020 results, shareholders should expect next year’s figures to be materially below this year’s results.
The group added that it would be scrapping its 2018 dividend as it looks to rebuild the company.
Gam’s shares fell over 20% on the back of the news on Thursday morning hitting CHF 3.60, the lowest point in its nine-year trading history on the SIX Swiss Exchange. In the year so far, it has seen 78% shaved off its share price.
Q4 redemptions gather pace
Redemptions in the fourth quarter so far were also higher than Gam had been anticipating.
Although in a previous update ex-CEO Alexander Friedman said the group had seen “an improving flow trend” net outflows were 20% shy of matching third quarter redemptions which it said was down to “challenging” market conditions.
Excluding money coming out from the ARBF range as it is being liquidated, the remainder of Gam’s investment management arm saw CHF4.2bn (£3.3bn) of net outflows in the two months to 30 November. In Q3 the same segment was hit by CHF 5.3bn (£4.2bn) of redemptions.
This took AUM in its investment management arm down from CHF 66.6bn to CHF 60.8bn.
Net outflows during the period were highest from its fixed income products and totalled CHF 3bn (£2.4bn).
Gam’s remaining absolute return funds saw the second highest level of redemptions with CHF 500m (£398m) pulled from products, particularly the Gam Star (Lux) – Merger Arbitrage and the Gam Absolute Return Europe Equity funds.
David Jacob attempts to reassure shareholders
In a statement accompanying Gam’s forecasted results newly minted CEO David Jacob (pictured) said the Swiss manager’s intention was to give shareholders and clients “the clearest assessment of our financial situation”.
“We are taking decisive action to rebase costs and support profitability, whilst maintaining our focus on client service and control functions,” he said.
“We are determined to do everything it takes to rebuild the trust of our stakeholders. We are fortunate to have excellent talent across our business, the ability to continue to invest in areas of strength and an attractive product range to build upon as we reposition GAM for future sustainable growth.”
Jacob stepped into the CEO role just two weeks ago after Alexander Freidman quit amid mounting pressure over his handling of the whistleblower crisis, which saw absolute return bond fund manager Tim Haywood suspended for conduct issues related to his due diligence and record keeping.
Haywood’s absolute return bond fund (ARBF) range was subsequently liquidated, accounting for almost 40% of the group’s total net outflows in Q3 of CHF3.2bn (£2.51bn).
Consolidation of bonds and equities teams
Gam also enclosed details of its restructuring plan, which will see it eliminate 10% of the roles across the group.
However the fund group gave no insight into which staff members and fund managers would be made redundant.
As part of the Swiss manager’s plan it will consolidate its fixed income teams across its London, Zurich and New York offices in order to focus on creating “an enhanced emerging market bond platform” as well as a broad global credit offering.
On the equities side, Gam has already consolidated the European equities managers into a single team. It said in the update it would continue to maintain its existing strengths in non-European equities.
Jacob said the measures will “simplify the business and enhance efficiency” and refocus Gam’s resources on “areas of strength and future growth”.
The restructuring measures are expected to result in a reduction of the fixed staff costs and general expenses run rate of at least CHF 40 million by the end of 2019 compared to the annualised cost run rate at half-year 2018 of CHF 282.2 million.
He added the changes would also involve Gam enhancing its risk and control environment and refining its corporate structure.
