The investment house reports first-half results, an acquisition agreement, and plans to cut costs that will lead to a reduction in headcount across the business.

Zurich-listed GAM, the investment house, today reported an underlying net profit of SFr81.2 million ($82.5 million) for the first six months of 2015, a year-on-year fall of 13 per cent, blaming the surge in the Swiss franc’s exchange rate for adversely affecting results. It also announced restructuring moves to slash costs, leading to a 15 per cent cut in total headcount, as well as an investment acquisition.

The firm said that almost 90 per cent of its operating income and about 60 per cent of its costs are denominated in currencies other than its Swiss franc reporting currency, hence explaining why the abandonment in January of the SFr1.20 per euro floor by the Swiss National Bank in January negatively affected results.

If forex movements from the end of 2014 were to be stripped away from results, operating income for the first half of 2015 would have increased by approximately 4 per cent and operating expenses would have been essentially flat compared to the second half of the previous year, the firm said in a statement.

GAM’s operating income for the first half of 2015 totalled SFr303.6 million, compared to SFr316.1 million in the second half of 2014. This reflects a decline in net fee and commission income and in "other operating income", it said.

Net fee and commission income declined 2 per cent. This development was due to currency effects which caused a reduction in management fee income. Performance fees, on the other hand, climbed from SFr31.0 million in the second half of 2014 to SFr44.1 million - an increase of 42 per cent - with strong contributions from global macro and select fixed income strategies as well as from the Julius Baer-branded non-directional European equity strategy. Performance fees from the GAM-branded non-directional equity range remained solid, although they were lower than in the second half of 2014.

Other operating income - which includes the impact of foreign exchange movements, gains and losses on seed capital investments as well as recurring fund-related fees and service charges - was SFr1.8 million, compared to SFr9.5 million in the second half of 2014, when GAM benefited from strong seed capital and currency gains.

Operating expenses fell by 5 per cent compared to the second half of 2014, from SFr212.5 million to SFr202.1 million.

For the first half of 2015, GAM reported a cost/income ratio of 66.6 per cent, above the firm’s mid-term target range of 60-65 per cent but an improvement from the ratio of 67.2 per cent reported for the second half of 2014.

Assets under management for the investment management business as at 30 June 2015 amounted to SFr73.5 billion, compared to SFr76.1 billion at year-end 2014. The reduction was entirely driven by foreign exchange movements, since assets in investment management are reported in Swiss francs but largely denominated in other currencies.

Net new money growth was particularly strong from March 2015 onwards. An important contribution came from specialist fixed income strategies, in particular the GAM-branded credit opportunities and catastrophe bond strategies as well as the Julius Baer-branded European total return strategy.

The firm said a shift in demand from traditional to higher-yielding bond allocations benefited GAM's mortgage-backed securities capability derived from the acquisition of the Singleterry Mansley business in 2014: the UCITS version of their strategy, launched in July 2014, more than tripled in size during the first half of 2015.

Emerging market debt, on the other hand, continued to be affected by volatile market sentiment, leading to small net outflows in the Julius Baer-branded strategy investing in local currency bonds.

Net flows into the group's absolute return/unconstrained bond strategy turned positive in the first half of 2015, following a marked improvement in absolute and relative investment performance since the beginning of the year.

Flows into directional equity products were largely flat. While the Julius Baer-branded Japan strategy saw significant inflows, other equity funds experienced net outflows, in particular GAM's US and Chinese equity strategies. Launched in 2007, GAM's Chinese equity strategy is one of the largest in the market. Amidst recent volatility, the fund still experienced significant gross inflows and largely retained its strong relative and absolute performance, the firm said.

Redemptions from the group's physical gold ETF slowed during the first half of 2015. They were more than offset by net inflows into the Julius Baer-branded long-only commodities strategy, it said.

GAM's alternative investments solutions reported net outflows for the six-month period, which the company attributed to negative industry trends affecting traditional fund of hedge funds strategies.

Assets under management in GAM’s private labelling segment were SFr50.7 billion as at 30 June 2015, up SFr3.6 billion from year-end 2014, driven by net new money inflows and the positive impact of market performance. Net new money inflows of SFr4.3 billion were recorded during the first half of 2015. They were driven by new mandate wins in Switzerland and Italy.

Brand
As previously announced, as of 1 June 2015, all of the group's businesses were united under the GAM brand, with the trademark “Julius Baer Funds” (licensed from Julius Baer under an exclusive agreement) retained purely as a product brand.

The firm said it is actively pursuing acquisition targets.

To lead its corporate development strategy, GAM has hired Tim Dana as group head of corporate development. He will join in the fall of 2015 from Citigroup's Financial Institutions Group, where he was a managing director and a senior M&A investment banker specialising in asset management.

Acquisition
Separately, GAM today announced it has entered a definitive agreement with London-based investment firm Renshaw Bay to buy its property business; that team manages around $1.2 billion of capital and was founded in 2011. The acquisition is subject to customary approvals and is expected to close in October 2015. The management of Renshaw Bay's real estate strategies, related legal entities and contracts, and all existing client relationships, will be transferred to GAM.

Under the terms of the transaction, the entire real estate team of 10 investment specialists will transfer to GAM, where it will continue to be led by Jon Rickert, head of real estate finance at Renshaw Bay.

Restructure, job cuts
To reduce organisation complexity, GAM said it has developed an 18-month plan to introduce a consistent operating "backbone" for its business, while outsourcing non-core functions. The programme starts in the second half of this year and is expected to be complete by the end of 2016, producing cost savings of around SFr20 million annually, or about 5 per cent or more of its cost base for 2014.

As a result of the planned restructuring measures, the total number of jobs in the group across all locations is likely to be reduced by approximately 15 per cent over the next 18 months. GAM will try to avoid redundancies to the extent possible, by using the group's natural personnel turnover to find alternative roles in-house, it said.