Gam surprises with quant credit fund soon after Haywood saga

£8.5bn ARBF range went into liquidation last August

Gam has made a surprising decision to launch a quant-based credit fund as it attempts to recover from the reputational fallout from the blow-up of its multi-billion-pound absolute return bond range.

The Dynamic Credit strategy is one of the first products the Swiss manager has launched since the firm was rocked by the abrupt suspension of one of its star bond managers Tim Haywood last summer, which precipitated the liquidation of his CHF11bn (£8.5bn) Absolute Return Bond Fund (ARBF) range.

The latest product from Gam is a daily-dealing Ucits fund that is described as “highly liquid”. According to the firm’s promotional materials, it aims to outperform global credit markets on an absolute and risk-adjusted basis over the cycle but with downside risk mitigation.

Dynamic Credit will invest in US and European government bond futures and “the most liquid names” in a universe of 400 single name credits, Gam said.

Haywood’s ARBF range reportedly had difficulties selling down some obscure securities in the portfolio linked to a start-up company called Greensill.

Surprising timing

One source told Portfolio Adviser they found it surprising Gam was releasing this product so soon after the Haywood saga.

The Dynamic Credit strategy is not categorised as an absolute return fund on Gam’s website but forms part of its Systematic platform, which is headed up by Anthony Lawler (pictured) and Adam Glinsman. However it will have the ability to short less desireable markets in addition to taking up long positions.

Adrian Lowcock, head of personal investing at Willis Owen, doubts Gam’s decision to launch a quant-based credit product was driven by the ARBF blow-up. He said demand for the product would have come from institutional and discretionary managers.

“Given it takes time to develop a new idea and launch a fund this is likely to have been in the works for some time,” he said.

A spokesperson for Gam said the strategy was launched at the earliest possible date following receipt of approvals across the UK and Europe but did not clarify whether the strategy was conceived before or after the ARBF range fell into liquidation.

An easier sell

Jason Hollands managing director at Tilney said it may be true that “a product managed in a highly disciplined, systematic way, is perceived to be an easier sell at the moment for GAM given recent issues.”

But he said the fund launch is more likely an attempt by Gam to capitalise on its quant capabilities.

“Gam already have a fairly sizeable quant capability and I’m sure this product launch is driven by what they perceive as the commercial opportunity for this strategy,” he said. “Systematic strategies have been steadily gaining appeal with institutional investors and I suspect that is the primary audience for this fund as many UK advice firms still tend to allocate into sterling rather than global credit funds.”

The Systematic platform had $4.3bn in assets under management as at 30 November 2018. In addition to the Dynamic Credit strategy, the team also looks after six other strategies, spanning equities, fixed income, multi-asset and alternatives.

Hollands continued: “Ultimately advisers and clients will need to assess the product it on its merits, and look beyond the recent period of corporate difficulties which GAM have clearly sought to draw a line under by making major changes at the senior management level.”

Challenging credit markets

Gary Potter, co-head of BMO Gam’s multi-manager business, questioned whether a quant-based credit fund with absolute return characteristics would be able to deliver in more challenging markets. The fund’s objective as stated by Gam is “very broad” and doesn’t specify the return expectations in a tougher credit market, he said.

“I get a bit twitchy when quant-based strategies are mentioned at key inflection points in the market,” Potter said.

Though Potter said Dynamic Credit’s absolute objective “makes sense” at this point in the cycle with credit spreads where they are and default rates potentially rising off the back of slower global growth, he said funds with similar objectives had failed to deliver.

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