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GAM faces challenges after suspension of top manager

Zurich

SWISS investment firm GAM Holding AG shut down one of its biggest fund strategies and suspended a top money manager in a bruising few weeks. Now comes the tough part: convincing the remaining clients that the troubles won't spread to other parts of the business.

Since the firm announced the suspension of Tim Haywood on July 31 and froze his funds, investors have pulled about US$2.3 billion from other GAM strategies, according to data compiled by Bloomberg through Aug 17.

While the numbers may not entirely capture firm-wide flows, especially from private funds, they do suggest that redemptions accelerated from July, when clients took out some US$800 million.

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In a business where even a hint of trouble can touch off a mad scramble for the exits, soothing investors is easier said than done.

"For any firm in this position, transparency is a key factor in regaining trust, which is absolutely critical but unfortunately is extremely difficult," said Jim Smigiel, chief investment officer of absolute return strategies at SEI Investments Co. "GAM's case is a bit of a perfect storm given that they are a public company."

Shares of the Zurich-based money manager, led by chief executive officer Alexander Friedman, have lost about a quarter of their value since Mr Haywood's suspension was announced. The firm is liquidating more than US$7 billion in funds previously managed by the bond expert. Redemptions in other portfolios would further reduce assets under management and the fees earned for overseeing them.

GAM has said that Mr Haywood's alleged transgressions were an isolated incident that hasn't led to losses for clients, and has maintained that the manager's honesty is not in question. Mr Haywood may have failed to conduct or document sufficient due diligence on some investments, and he may have signed alone on contracts where two signatories were required, according to the firm.

GAM froze Mr Haywood's funds effective July 31 to allow for an orderly liquidation. While the fund was liquid enough to meet redemption requests at the time, such a move would have left remaining investors with a disproportionate exposure to certain holdings, GAM said. BLOOMBERG