The firm is cutting costs and halting its 2018 dividend amid a battle to restore fortunes. Investors have pulled billions of money out of the firm since a senior manager was suspended earlier this year.

GAM Holding, the embattled wealth manager hit by client outflows amid the suspension of a senior manager, today added more detail to reports that it is slashing costs. The Zurich-listed firm said it intends to cut expenses by at least SFr40 million ($40.3 million) by the end of next year. Cost cuts will include shedding employees.

To rebuild its capital, GAM’s directors said the firm won’t pay a dividend for 2018.

The firm said assets under management fell to SFr139.1 billion at 30 November from SFr146.1 billion at end-September this year, mainly caused by net outflows of SFr4.2 billion in its investment management arm. 

“Given the significantly lower levels of AuM and the phasing of the cost reduction program, GAM expects its 2019 financial results to be materially below those of 2018,” it said in a statement.

Investors have pulled billions from GAM’s Absolute Return Bond fund range after the unit’s manager, Tim Haywood, was suspended earlier this year. The firm launched a probe in the summer into Haywood's conduct after concerns about his activity were flagged by an internal whistleblower. At the time of Haywood’s suspension in late July, GAM said that it acted because “some of his risk management procedures and his record keeping in certain instances” fell short of requirements. One casualty of the affair was Alex Friedman, its chief executive, who resigned a few weeks ago.

The departure of Friedman was a setback to what had been until then a stellar career. He took on the GAM job four years ago after leaving UBS. At that Swiss bank, Friedman, a US citizen, was global chief investment officer of UBS Wealth Management and Wealth Management Americas. Before that, he was the chief financial officer of the Bill & Melinda Gates Foundation, a senior advisor to Lazard, and a member of the supervisory board of private equity firm Actis. He was a White House fellow in the Clinton administration and an assistant to the US Secretary of Defense. He is a board member of several non-profit organisations and a member of the Council on Foreign Relations.

Shares in GAM have tumbled since the start of this year.

Source: Marketwatch.com

As well as showing how corporate governance and related issues can dramatically affect inflows and outflows, the story also highlights the vulnerability of listed asset managers to heavy portfolio liquidations.

Restructuring program
GAM said it had launched a “group-wide restructuring program” to boost profitability and simply how it is run. Cost savings should be fully reflected in 2020 results, it said. The statement did not give a specific number on how many employees will lose their jobs.

Underlying pre-tax profit for 2018 is expected to be about SFr125 million (including about SFr3 million of performance fees), falling from SFr172.5 million (including SFr44.1 million of performance fees) in 2017. On an IFRS reporting basis, the group is expected to take a loss of about SFr925 million for this year, driven by a goodwill impairment charge of about SFr885 million, and a separate goodwill impairment charge of about SFr62 million in the second half of this year linked to Cantab investment management and client contracts. These impairment charges will not impact the group's tangible equity or cash position, it said. 

There will also be a non-recurring charge of about SFr30 million because of the restructuring program and professional costs linked to the absolute return/unconstrained fixed income strategy (ARBF).

"With today's announcement we are seeking to give our shareholders and our 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. We are determined to do everything it takes to rebuild the trust of our stakeholders,” David Jacob, group chief executive, said.