GAM Buys Machine-Led $4 Billion Fund Manager Cantab Capital

  • GAM to pay Cantab $217 million cash plus deferred payments
  • Cantab co-founded by ex-Goldman Sachs quant manager Ewan Kirk

GAM Holding AG is buying Cantab Capital Partners LLP for $217 million in cash and deferred payments after spending 18 months weighing the purchase of a computer model-driven fund.

The acquisition enables Zurich-based GAM to introduce a computer-driven trading system focused on long-only and alternative strategies, the asset manager said in a statement on Wednesday. The shares rose the most in almost three years.

Cantab Capital, a Cambridge, England-based firm with $4 billion in assets under management, uses mathematical models to decide when and which securities to buy and sell. Computer-driven hedge funds have outperformed during periods of volatility such as after Thursday’s Brexit vote. When the S&P 500 Index tumbled 5.5 percent during the first two months of the year, computer-led funds gained 5.25 percent, according to the HFRX Macro: Systematic Diversified CTA Index.

“We have been evaluating how best to enter the systematic space for the past 18 months,” said GAM Chief Executive Officer Alexander Friedman. “The market turmoil following the U.K. referendum last week has only reinforced our determination to pursue, and deliver on, our strategy of diversification and long-term growth.”

GAM jumped as much as 10 percent in Zurich trading, the most since August 2013, and was up 8.9 percent at 9.20 Swiss francs as of 3:48 p.m. The Bloomberg Banks and Financial Services Index advanced 1.9 percent.

Market Volatility

GAM has declined about 44 percent this year as clients withdrew money amid market volatility, and the company warned of lower first-half profits from performance fees barely above zero. Active asset managers are also under pressure from the cost of regulation and increased flows of investor money into instruments such as exchange-traded funds that passively track markets.

Friedman and Ewan Kirk, Cantab’s co-founder and chief investment officer, say they have been in discussions for about a year and the deal isn’t a reaction to recent events. It comes days after the U.K. referendum roiled markets, triggering a selloff in European equities and the pound. GAM expects the purchase to contribute to earnings in the first full year of ownership after the deal closes in the second half of 2016.

“The last couple of weeks, as well as January and February, underscore just how important it is for a global firm like ours to have a capability in this space,” Friedman said by telephone. Together, the two firms will “move quickly to develop a series of other strategies and solutions,” he said.

Lynx Asset Management, which trades based on mathematical models, posted a 5.1 percent gain last Friday in one of its funds, according to its website. Capital Fund Management gained 4.2 percent in its Discus fund, while Systematica Investments, the $10.2 billion fund run by Leda Braga, gained 1.35 percent in its main BlueTrend fund, people with knowledge of the matter said.

Cornerstone

Cantab Capital “did very well” in the first two months of the year, “when everybody thought the world was ending,” Kirk said by phone, without disclosing figures. The firm gathered $81.9 million in fees in 2015, of which $32.9 million was based on performance, according to GAM’s statement.

Before starting Cantab Capital in 2006, Kirk was a partner at Goldman Sachs Group Inc., where he developed the bank’s quantitative technology and trading platform across commodities, currencies, interest rates, credit and equities. He maintains close links with the University of Cambridge and has hired staff with degrees in mathematics, physics, statistics and computer science to help manage assets for clients such as pension funds, sovereign wealth funds, endowments and foundations.

Cantab Capital will form the cornerstone of GAM Systematic, a new investment platform dedicated to products covering alternative investments and long-only traditional asset classes such as equities, debt and multi-asset strategies, according to GAM’s statement.

Cantab Capital, which is owned by six partners who will share the proceeds of the transaction, will benefit from reaching more investors through GAM’s 200 distribution and marketing staff, Kirk said. The partners retain a 40 percent interest in future performance fees under the deal.

GAM is funding the transaction from cash resources of 458 million francs ($467 million) and has temporarily suspended its share buyback program that runs until April 28, 2017, to maintain appropriate levels of capital, the company said.

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