GAM rebuffs Schroders approach for hedge fund unit
Embattled Swiss fund manager would prefer a sale of the whole business
Schroders has approached embattled Swiss investment group GAM over a potential acquisition of its Systematic division that houses the Cantab quantitative hedge fund.
However, GAM has rebuffed the approach, concerned that selling one of its prized assets would make an overall sale more difficult, according to two people familiar with the matter. Both London-listed Schroders and GAM declined to comment.
GAM’s share price has collapsed by more than two-thirds this year, valuing the entire company at just SFr966m ($963m). The tumble in shares accelerated in July, when GAM warned that first-half profits would be hit by SFr59m in write-offs at Cantab, which it bought in 2016 for an initial $217m cash payment.
Soon afterwards, GAM stunned the market by suspending Tim Haywood, its investment director who oversaw the SFr10.8bn absolute return bond fund range, after discovering “potential misconduct issues”. After a wave of redemption requests, GAM restricted withdrawals from those funds before announcing it would liquidate the funds and return money to investors.
GAM has said in recent months it is exploring all strategic options to maximise shareholder value, which analysts say includes an outright sale of the Zurich-listed group. Chief executive Alexander Friedman is under extreme pressure to stabilise the group.
Its Systematic division has clung on relatively well in recent months, judging from GAM’s third-quarter trading update on October 23. Although overall assets in the investment management business fell from SFr84.4bn at the end of the second quarter to SFr66.8bn in the third quarter, GAM Systematic’s assets were flat at SFr4.6bn.
Fellow Swiss group UBS has recently indicated it would consider acquisitions to bulk up its asset management division, and industry insiders said Systematic unit could fit in well with its plans. UBS declined to comment.
Tomasz Grzelak, an analyst at Zurich-based bank Baader Helvea, said given the SFr59m write-off at Cambridge-based Cantab, the value of GAM Systematic is much lower than it was two years ago. “It was growing fast with very stable fees but its performance worsened materially this year. It will probably generate zero performance fees this year,” he said.
He estimated that the business is worth roughly half what GAM paid for it. “It is a hot target,” he said. “Any buyer would be trying to pay as little as possible.”
While many quant funds have suffered a bruising 2018, investor appetite for more computer-driven, systematic strategies remains high, spurring many traditional fund managers to attempt to reshape themselves and adopt popular quant techniques and approaches.
Schroders has been beefing up its renamed Schroders Systematic Investments division, which manages £8bn. Last month it hired Philipp Kauer, a senior quantitative investment specialist with more than two decades experience, from Man Group.
Cantab was founded in 2006 by Ewan Kirk, a mathematics PhD and former head of Goldman Sachs’s European strategies group, and Erich Schlaikjer, a programmer who also worked at Goldman Sachs. Mr Schlaikjer has since retired.
GAM Systematic’s co-heads are Adam Glinsman, former Cantab chief executive, and Anthony Lawler, who is also portfolio manager for Alternative Risk Premia solutions. Much of the value in the business lies in its technology platform.