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GAM Talks Q2 19: Navigating current market conditions

This page provides information related to GAMs ARBF strategy and will be updated as and when new information becomes available.

This FAQ was last updated on 17 April 2019 and will continue to be updated from time to time. All historic announcements and letters remain available on GAMs website.

GAM continues to make good progress on the liquidation of the ARBF assets. Following the recent sale of two material assets, a further distribution will take place over the next two weeks resulting in 8995%1of the Luxembourg-regulated GAM Multibond and the Ireland-regulated GAM Star funds, and 8084%1of the Cayman master funds and the associated Cayman and Australian feeder funds assets being returned to clients. This leaves one remaining group of material assets within the ARBF funds and mandates, which are subject to the agreement as set out below.

GAM International Management Limited and an entity within the GFG Alliance (GFG) have signed an agreement whereby GFG has agreed to acquire all outstanding power purchase receivables notes held in accounts invested in the ARBF strategy managed by GAM International Management Limited.

GFG has already refinanced approximately one third of the GFG originated notes previously held in strategies managed by GAM International Management Limited. Under the terms of the agreement, GFG agrees to facilitate the acquisition of the relevant notes at the valuation at which the notes were purchased by the relevant accounts. The closing of the transaction is expected to be completed on or before 15 July 2019 and is subject to customary conditions. The sale of the notes will complete the asset divestitures in connection with the ARBF account liquidations announced in August 2018.

Subject to the successful execution of the above, a final distribution will be made to clients as soon as possible, completing the liquidation with total distributions currently expected to be between 99.6101.0% of amounts held at the time the liquidation began2, depending on the funds and mandates in question.

GAMs priority is to maximise value for the investors throughout the liquidation process, while ensuring fair treatment to all. We are focused on ensuring we balance value maximisation with speed of liquidation, taking into account market conditions. As such, additional payments in respect of redemption proceeds will be made in tranches as proceeds from the sale of the underlying fund investments become available. This is subject to us hitting the 5% threshold that we believe makes a distribution efficient and in the economic interest of clients. We expect there to be another distribution over the coming months, depending on market conditions.

Our focus will be on optimising the prices we can obtain for all assets to maximise value for clients. As such, we cannot provide additional details on the ARBF funds remaining assets during this stage of the liquidation process, as this could put GAMs liquidation efforts and fund investors at a disadvantage when these assets are liquidated.

GAM is continually reviewing and enhancing its risk management framework in line with regulatory standards and industry good practice. The specific steps we have taken in the last 18 months to restructure and strengthen our risk management approach across our three lines of defence are listed below:

First line:In 2017, GAM created a new role of Head of Investments and hired an individual who has approximately 20 years of relevant investment and control experience, to strengthen the first line investment oversight across key investment and trading areas. Further, a new and dedicated front office controls function has been created with responsibility for managing risk within the front office control environment. Additionally, GAM has made enhancements to the day to day oversight of risk by shifting current regionally-based governance arrangements to a group-led model via the implementation of a series of group oversight committees covering risk, compliance, investment, distribution and change activities.

Second line:GAM took the decision to separate the compliance and legal function in 2018 to reinforce the critical importance of these functions in their own right. Additionally, specialist compliance expertise has been recently recruited in the areas of financial crime and conflicts of interest. The Group Chief Risk Officer and Group Head of Compliance now report to the group Chief Executive Officer and participate in the Group Management Board, underscoring the importance of these functions to GAM. At the end of 2017, the quantitative analytics team, formerly within the operations function, joined the risk function to provide greater independence. In 2018, the risk function took over group-wide ownership for the investment restrictions compliance monitoring activities. Both the compliance and risk functions will continue to assess their effectiveness and related capabilities as part of our on-going commitment to operate robust risk management across the group. In addition, we are in the process of recruiting for a new role of Head of Investment Risk.

Third line:A new Head of Internal Audit with extensive asset management experience was hired at the end of 2017, and the team has been strengthened by the hiring of additional roles. The function is in the process of recruiting a senior auditor with specialist experience in the trading and investment management area. These, amongst other planned enhancements to methodology and reporting, will further support internal audit in providing assurance on the operation of first and second line activities to manage risk to the Board of Directors (non-executive).

As a result of the findings from our investigation, we have made a number of improvements to our policies and procedures, for example, we have:

Strengthened our two-signatory policy by taking steps to ensure that portfolio managers are not directors of any of our investment advisory entities

Revised, where deemed necessary, certain policies (see matters identified below) and provided training to relevant staff

We have continued to strengthen our three lines of defence model with a number of enhancements over the past 12 to 18 months in the following areas:

Updates to internal policies in relation to execution, allocation and conflicts of interest

Established a review of the recording of assets purchases and sales

Updated training on conflicts of interest, including gifts and entertainment

Improved implementation of consistent standards globally, we have established a series of group oversight committees covering risk, compliance, investment, distribution and change activities

The compliance and legal function was separated in 2018 to elevate the importance of compliance

The Group Chief Risk Officer and Group Head Of Compliance both now participate in the Group Management Board (GMB) underscoring the importance of these functions.

There have also been a number of personnel additions which have further strengthened capabilities in areas including financial crime prevention, compliance monitoring and regulatory developments and front office controls.

We aim to differentiate ourselves as an independent global asset management firm, investing our clients assets across active and specialised discretionary and systematic investment solutions. We continue to build upon the strength of GAM as a diversified asset manager and are confident that GAMs investment management teams will continue to deliver investment returns expected by our clients.

We are taking immediate and near-term steps to adapt our business to support GAMs profitability. As such we are focussing on the following:

We plan to update on our strategic priorities by our full-year results on 21 February 2019.

Update on GAMs internal disciplinary process of Tim Haywood

Following the conclusion of the investigation and the disciplinary proceedings, Tim Haywood has now been dismissed from the company for gross misconduct.

1The amount of each fund returned to investors as percentages of the net asset value of the relevant fund as at 3 September 2018 for Luxembourg and the Cayman funds and as at 4 September 2018 for the Ireland funds.

GAM employs approximately 900 people in 14 countries, who collectively manage CHF137.4billion in assets for our clients (as at 31 March 2019).

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