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GAM Absolute Return Bond Funds Wind Up

Almost a year after the suspension of the funds, investors are set to get the last of their money back, including a 50 basis point premium

Holly Black 15 July, 2019 | 4:09PM

Liquidity

Investors in the GAM unconstrained/absolute return bond funds are set to get their money back almost a year after they suspended trading.

The Swiss asset management firm announced the suspension of investment director Tim Haywood on July 31 2018 and plans to investigate some of his risk management procedures and record keeping.

Days later, it was announced that the unconstrained/absolute return bond strategy, which managed around £5.6 billion of assets, would be suspended following a flood of investor redemption requests. While GAM said the funds had enough liquidity to honour the redemptions, it said doing so would lead to a shift in the portfolio composition, which could compromise the interests of the remaining investors.

Investment directors Jack Flaherty and Alex McKnight were placed in charge of the funds after Haywood’s suspension but GAM soon announced plans to liquidate them to “allow investors the opportunity to receive proceeds in a more timely manner and ensure equal treatment”.

An announcement from GAM at the end of September 2018 revealed that between 60% and 87% of assets had already been liquidated and returned to investors, with more to follow dependent on market conditions.

Alexander S. Friedman, group chief executive at GAM, said at the time: “The suspension and the subsequent decision to liquidate the ARBF funds has been a difficult process, but necessary to ensure that we deliver on our principles of acting in the best interests of all fund investors and treating them equally and fairly.”

GAM Could be Sold Off

After almost 12 months of waiting, investors in the funds are now set to get the last of their money back as the funds complete their wind-down. Investors will get a 50-basis point premium on top of the amount they hold in the funds. GAM said it was on track to sell the remaining assets from the funds “on or before July 15 2019”, promising to update the market upon completion.

The wind-down comes as the Swiss asset management group is set to publish its half-year results on July 30. It has already warned that results are expected to be materially lower than a year ago, with pre-tax profit of around SFr2 million (£1.6 million) for the period, compared to SFr91.3 million (£74 million) in the first half of 2018. The firm said this was primarily a result of lower revenues due to the decline in assets under management from SFr84.4 billion (£68.4 billion) as at June 30 2018 to SFr52 million (£42.1 billion) at June 30 2019.

Commentators say the completion of the funds' liquidation could be followed by a sale of the business. GAM said there would be a group-wide restructuring programme to “enhance efficiency, support profitability and simplify the organisation, while repositioning GAM for future growth”.

It’s a stark omen to Woodford Investment Management, which is currently managing the suspension of the Woodford Equity Income fund, which was also forced to gate after a flood of redemption requests. Investors are unable to buy and sell the fund while manager Neil Woodford attempts to sell off his holdings in unlisted and illiquid assets. There is no suggestion of any wrongdoing on the part of Woodford leading up to the fund's suspension.

The Woodford fund is not the only one currently facing a liquidity crisis. Investors have pulled around £7 billion out of the H2O Allegro fund amid concerns about its illiquid bond holdings. Morningstar analysts downgraded their rating on the fund from Bronze to Neutral amid concerns over its holdings in high-risk bonds.

David Jacob, group chief executive at GAM, said: "We are very pleased that we will be making the final payment to our ARBF investors over the coming weeks. We would like to thank all our clients for their continued patience during the liquidation process." 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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