It seems that Zurich-based GAM Holding has become the latest Swiss financial firm to lose money on UK-based acquisitions.
GAM’s 2018 half-year results show a CHF 71.1 million impairment loss on Cantab Capital Partners, the Cambridge-based systematic investment management specialist that it acquired in October 2016 for an initial payment of $217 million.
The half-year results also show a further decline in GAM’s private client business as another CHF 0.3 billion of assets exited the business.
When launched by Gilbert de Botton in 1983 private clients accounted for most of GAM’s business. Now they account for just CHF 5 billion of the CHF 84.4 billion that the firm had under management within its investment management division at the end of June 2018.
Poor investment performance coupled with lower than anticipated inflows of new money appear to be the main catalysts behind the decision to take the loss on Cantab.
The reality is that GAM misread the market when it purchased Cantab at what may turn out to have a generous multiple of around 5.4 percent of assets under management.
“While we anticipated the shift in investor preference toward less volatile products, it happened faster than expected,” said Hugh Scott-Barrett, its chairman and Alexander Friedman, its chief executive, in their letter to shareholders. “As a result, GAM Systematic Cantab’s more volatile funds have suffered, in line with industry peers”.
Nonetheless GAM remains confident that Cantab’s systematic strategies will help underpin future growth at the company.
“Nevertheless, we continue to see GAM Systematic Cantab as a key driver of long-term growth for our company,” continue Mr Scott-Barrett and Mr Friedman. “The ability to quickly and accurately analyse a myriad of data sets for stocks, bonds and other asset classes offers a distinct advantage for quantitative and discretionary managers alike.
“GAM Systematic Cantab’s strategies provide investors valuable diversification and non-correlated returns to traditional assets classes over the economic cycle, while our industry-leading and scalable technology platform allows us to continue expanding our systematic product range to meet client demand. We have already launched several new lower-volatility systematic products that are receiving increasing interest from clients and are integral to diversifying GAM’s business into capabilities with strong future growth potential.”
2018’s CHF 71 million acquisition-related hit follows a CHF 5.7 million impairment charge taken a year earlier on Taube Hodson Stonex (THS), a London-based global equity boutique that GAM also acquired in 2016 for an unspecified price.
Here it seems that although GAM acquired a business, it didn’t manage to retain all of THS’s client assets. These quickly departed elsewhere.
“As a result of the loss of mandates and clients, the assets under management of the Taube Hodson Stonex (THS) business significantly decreased in the first half of 2017 reflecting an indication of impairment of related investment management and client contracts,” said Note 8 to the accounts presented in GAM’s half year report for 2017.
At least GAM has the consolation of acquiring the sub-adviser of one of its oldest global equity strategies which was initially launched in 1983.
And it is not the first Swiss financial firm to take a loss on UK acquisitions as former owner UBS will know all too well.