GAM Holding Plummets After Profit Warning Startles Investors

  • Asset manager expects profit to fall by half in first 6 months
  • Filing raises concerns about asset manager fees, analyst says

GAM Holding AG said profit will probably fall by half in the first six months of the year after performance fees at the Swiss asset manager dried up. The shares fell to the lowest since 2011.

Underlying profit both before and after tax is expected to decline by about 50 percent from a year earlier, the Zurich-based company said on Tuesday. Performance commissions will probably tumble to 1 million Swiss francs ($1.04 million) from 44.1 million francs in the same period last year. The shares fell as much as 18 percent, the biggest drop since the Swiss central bank removed its cap on the euro in January 2015.

“GAM did not indicate that performance fee generation in the first half would almost be non-existent, as now appears to be the case,” Peter Lenardos, an analyst at RBC Europe Ltd. with a sector perform rating on the shares, said in a note to clients Tuesday.

The announcement was unexpected and means that GAM probably won’t reach RBC’s full-year profit before tax estimate of 141 million francs, according to Lenardos. The forecast will probably raise more broad concerns about performance fees in the asset-management industry and may have implications for Henderson Group Plc and Man Group Plc, he wrote.

Henderson dropped 4.6 percent to 232.8 pence, while Man Group declined 4.8 percent to 115 pence as of 10:22 a.m. in London. The Bloomberg Banks and Financial Services Index fell 1.8 percent. GAM was down 16 percent in Zurich at 9.62 francs as of 11:22 a.m. The stock has declined about 40 percent this year, giving the company a market value of 1.57 billion francs.

“We expect the next few years to be more challenging for asset managers, with a lower return environment putting more pressure on managers to drive assets under management growth through flows,” Goldman Sachs Group Inc. analysts including Chris Turner said in an e-mail to clients. “We had expected GAM’s bias toward absolute return strategies to provide some insulation,” they wrote. Goldman rates the shares sell/neutral.

Net management fees and commissions are also expected to fall at GAM, mainly because of lower assets under management and a reduced fee margin, the company said Tuesday. The firm faces more outflows of client money and more margin pressure in the second half of the year, Tomasz Grzelak, a Zurich-based analyst at MainFirst, said by telephone.

“Clients are asking why they should pay such high fees when the managers aren’t making any money? Investors’ move away from active management toward passive instruments that track markets and securities is intensifying,” he said.

The Julius Baer Multibond Absolute Return Bond Fund, in which GAM manages about 3.48 billion euros ($3.9 billion) for clients, has under-performed 96 percent of peers in the past three years, according to data compiled by Bloomberg.

“Absolute return bond funds, which are supposed to be GAM’s stellar examples of the strengths of active management, have been falling for more than a year,” said Grzelak, who has an under-perform rating on the shares. “They must be getting their calls wrong.”

GAM previously reported net outflows of 3.1 billion francs the first quarter as market turbulence prompted investors to avoid risk and said that performance fees would fall in the first half as market instability continues. Assets under management dropped 4 percent to 114.7 billion francs, hurt by a weakening dollar and pound, according to a statement in April. GAM reported profit after tax of 80.9 million francs in the first half of 2015.

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