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Money Management

GAM ousts Tim Haywood after scandal triggers plunge in assets

GAM Holding dismissed Tim Haywood, the bond manager at the center of a scandal that's sent assets tumbling.

Investors have fled the investment firm, cutting assets under management by almost 3 billion Swiss francs ($3 billion) since the end of November, the company said. The drop for the full year was the worst in a decade and missed the company-compiled analyst estimate by about 4 billion francs. GAM also suspended its mid- to long-term financial targets.

The ouster of Mr. Haywood for "gross misconduct" caps a tumultuous period for the Swiss firm. Investors have pulled about $16.3 billion from the company since the end of June and the shares have dropped about 70% since Mr. Haywood's suspension. GAM is cutting 10% of its work force and the board proposed slashing the bonus pool for executives by almost two thirds.

"2018 marked the most difficult year for GAM since its independence 10 years ago, and 2019 will continue to be challenging," Chairman Hugh Scott-Barrett said in a statement Thursday.

Regarding Mr. Haywood's suspension, GAM said that there was "serious failure" to achieve the standard of skill and care that should be expected of someone in his position. Bloomberg reported the plan to dismiss him Wednesday.

CEO's challenge

Just three months into the job, interim Chief Executive Officer David Jacob is facing client withdrawals in the funds that bring GAM the fattest fees. Assets under management declined by more than 26.5 billion francs over last year.

The bulk of client withdrawals to date have come in investment management, the company's principal revenue driver. Clients pulled the most money — about 5.4 billion francs over 2018 — from fixed-income funds that include GAM Star Credit Opportunities and GAM Local Emerging Bond. Daily flows have improved in the first weeks of the year compared to December 2018, but institutional flows remain unpredictable, the company said in a statement.

"Fee pressure is very significant and is also mentioned in the outlook," Vontobel analyst Andreas Venditti said in a note. "Coupled with lower starting AUM, we believe our (and consensus) revenue estimates are too optimistic. The divergence in analyst estimates for 2019 and beyond is huge."

Clients flee

GAM parted ways with CEO Alex Friedman in November after a series of mishaps culminated in Mr. Haywood's suspension and left the firm fighting for its survival. Still, GAM isn't the only manager suffering outflows. In Europe's ailing asset-management industry, open-ended funds lost €88 billion ($100 billion) of client money in the final three months of 2018, according to an estimate from Amundi.

GAM in December warned of a shortfall of 925 million francs for 2018 after massive outflows forced it to write down the value of its business.

With clients starting to flee following Mr. Haywood's suspension, the firm was forced to suspend redemptions in his funds to avoid a fire sale and to ensure that investors were treated fairly. News of the freeze then triggered withdrawals in other parts of the business.

The liquidation of Mr. Haywood's funds is progressing well and is expected to be completed in the next few months, subject to market conditions, the company said Thursday.

GAM has drawn a line under its absolute return bond fund issues and the message on director remuneration is welcome Citigroup analysts including Haley Tam write in a note. "However, restructuring work will be little comfort if GAM's earnings power continues to shrink."