As a case study in how to mishandle a scandal, it is hard to beat the sad story of GAM.
In July, with the shares bumbling along, the Zurich-based funds group said it had suspended one of its top asset managers over compliance breaches. Since then investors have pulled out billions of Swiss francs and chief executive Alex Friedman has gone, along with the Labrador that sometimes accompanied him to work.
On Thursday the company warned on profits, scrapped its dividend and announced a writedown bigger than the past eight years of earnings. The shares, already down about two-thirds from the summer, lost another 25 per cent, tumbling to a 15-year low.
The new CEO, David Jacob, is adopting the language of the under-fire sports coach. He will do “whatever it takes”. The situation is now critical. GAM had SFr60.8bn ($61.3bn) of assets under management in its core business at the end of last month, following SFr4.2bn in net outflows since the beginning of October. At that rate, it would take only six months for GAM’s income to be swallowed by costs. That forecast assumes average management fees of about 60 basis points and a small contribution from a third-party fund-servicing platform.
Mr Jacob has a few levers to pull. The easy bit is a giant writedown of SFr885m in goodwill, in part a legacy of the sale of GAM in 2005. Cutting costs will be harder. GAM was set up 34 years ago by Gilbert de Botton, a financier and father of Alain, the pop philosopher. It has never seemed to be more than a collection of boutiques operating more or less independently, with the bureaucracy and entitlement that implies. Non-personnel expenses rose 20 per cent in the first half of the year, for example, despite a “multiyear change programme”.
Consolation comes not from philosophy, as de Botton fils would advocate, but shared adversity. Peers such as Jupiter and Standard Life Aberdeen have endured big outflows too as flagship funds struggle. That makes them less likely to poach staff from units of GAM specialising in emerging market debt, European shares and systematic strategies.
Traditional asset managers are stable businesses suffering slow decline. Crashing one requires a special kind of cack-handedness. Who is to blame? Mr Friedman? Or his dog, maybe? Only a Cynic philosopher could have predicted it. Riff on that, Alain.
Lex publishes two popular newsletters for premium subscribers. Wednesday: Lex Letter From London, New York or San Francisco. Fridays: Best of Lex, a weekly round-up. Please sign up at ft.com/newsletters.
Letter in response to this note:
Get alerts on GAM Holding AG when a new story is published