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Alex Friedman, chief executive officer of GAM Holding AG, poses for a photograph following a Bloomberg Television interview in London, U.K., on Wednesday, Nov. 29, 2017. Friedman is reorganizing the firm in an industry that’s under pressure from higher regulatory expenses and the growing popularity of low-cost passive funds that track a broader benchmark market index. Photographer: Jason Alden/Bloomberg

(bloomberg)

(Bloomberg) -- The damage control effort at GAM Holding AG hasn’t helped the asset manager turn a corner yet.

Since the Swiss investment firm suspended one of its biggest money managers six weeks ago over allegations of misconduct and froze more than $7 billion of his funds, clients have pulled $3 billion from unrelated portfolios and its shares have plunged 41 percent.

While Chief Executive Officer Alex Friedman and Head of Investments Matthew Beesley have been on the phone with the biggest clients to offer reassurance, they aren’t divulging more than what’s been said publicly, according to a person with direct knowledge of the firm.

It’s precisely this mystery shrouding the events that led to Tim Haywood’s suspension on July 31 that threatens to cause severe damage to GAM’s reputation, according to six investors, bankers and analysts interviewed by Bloomberg. Investment bankers are already lining up possible buyers in the event of a possible sale of GAM, according to four of the people.

“GAM needs to regain client trust,” said David Hart, an analyst at Kepler Cheuvreux in Zurich. “This is not a short term fix -- it can take months or years. It’s a challenging situation.”

Between client withdrawals and the planned liquidations of some Haywood funds, about $10 billion of the fund manager’s $165 billion in assets have already been wiped out. Outflows could reach 15 billion Swiss francs ($15.5 billion) in the second half, according to estimates of Vontobel Holding analyst Andreas Venditti, almost doubling a previous estimate.

The flow figures compiled by Bloomberg are estimates and may vary from actual figures. GAM declined to comment on the number.

Investors Flee

The stock market is also teeming with skeptics. Short sellers, who wager against stocks because they anticipate further declines, held 4.8 percent of GAM’s outstanding shares as of Sept. 10, according to data from IHS Markit. That’s up from just 0.3 percent at the end of July.

GAM’s stock has already lost more than half its value this year.

In a 32-point Q&A published on GAM’s website this week, it offered few clues into what Haywood did wrong, saying that he breached the company’s gifts and entertainment policy and circumvented a rule that requires two signatures to make an investment. It said it started investigating Haywood as far back as last November.

Suspicious Purchases

According to people familiar with the firm, GAM’s investigation had something to do with investments Haywood made in unlisted securities linked to British-Indian businessman Sanjeev Gupta. But GAM hasn’t elaborated on what exactly Haywood did.

The firm has previously said Haywood’s honesty isn’t in question and that in certain instances, he “may have failed” to conduct sufficient due diligence on some of the investments made.

Some shareholders, disappointed with how the management team has communicated through the crisis, have suggested the company should replace CEO Friedman, according to an investor, who spoke on the condition of anonymity.

Bankers Circling

While no formal sales process has started for GAM, bankers are already testing buyer appetite among U.S. and European asset managers in case GAM decides to pursue a transaction, four people said.

Others, though, said the turmoil surrounding Haywood’s funds had been contained. While some clients got out of other GAM funds immediately for their own compliance reasons, the outflows have since stopped, according to one person, who added that Friedman still enjoys a lot of support from staff.

GAM has also downplayed the withdrawals, saying previously they reflect challenging market conditions that have affected many asset managers, who’ve faced outflows this year. Fund flows started to turn negative in May in Europe, hitting some of the region’s biggest firms such as Standard Life Aberdeen Plc, Jupiter Fund Management Plc and DWS Group.

In the website Q&A, which was also circulated by e-mail to employees, GAM detailed how it plans to unwind Haywood’s funds and outlined the ways it’s strengthened internal policies.

For instance, Haywood could have justified being a single signatory on investments because he was both a portfolio manager and a board director, according to GAM. To prevent this from happening in the future, GAM will now on bar money managers from sitting as directors on any investment-advisory entities.

GAM said it expects to complete an internal disciplinary process “swiftly" and expects to pay investors in Haywood’s funds an installment of cash owed to them by the end of September.

(Adds chart.)

--With assistance from Ryan Du Toit, Patrick Winters and Aaron Kirchfeld.

To contact the reporters on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net;Sree Vidya Bhaktavatsalam in London at sbhaktavatsa@bloomberg.net

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Daliah Merzaban

©2018 Bloomberg L.P.

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