Gam moves to limit bond fallout in Asia

Industry Interviews

Asia head Rossen Djounov explains Asia-Pac damage control, lessons learned and the firm’s regional plans.

Rossen Djounov, Gam Investments

Fallout from the scandal surrounding Gam’s ex-bond fund manager has hijacked priorities in Asia, Hong Kong-based managing director and head of Asia Rossen Djounov told FSA.

But he believes that after efforts to address client concerns “we are closer to the end than the beginning” of the crisis.

Last year a whistleblower investigation led to the eventual dismissal of Tim Haywood, fixed income investment director for the absolute return bond strategy (ARBF) for what the firm alleges were due diligence and record-keeping failures.

A rush of withdrawals resulted and Gam ultimately decided to liquidate the fund range. Fallout included a plunge in Gam’s stock price, the exit of CEO Alexander Friedman, possible sale of parts of the business, changes in the board of directors and a reputational crisis.

Asia-Pacific investors in the liquidated ARBF range included Australia superannuation funds, Japanese institutional clients and investors in Taiwan, where the funds are sold through master agents, Djounov said.

No institutional or private bank clients in Hong Kong or Singapore were invested in the ARBF range, he added. Gam doesn’t directly address the retail market anywhere globally.

In Australia, one week before the scandal broke Djounov had opened a Sydney office, which fortunately had local staff to meet with the institutional clients invested in the funds set for liquidation.

“After initial concerns and a scare, investors wanted to know if this is an endemic issue or not. We communicated with investors to assure them the platform isn’t broken, assets in the portfolio aren’t impaired, and the aim is to maximize the disposal value of these assets for all investors.”

He said the firm followed a similar procedure in Japan.

“Communication is everything,” Djounov said. “To be as transparent and real time as you possibly can. The way we address these issues is what investors will remember and I’m encouraged by investor feedback that we’ve addressed this increasingly well.”

Portfolio managers are working to sell the ARBF assets, which are not freely trading on public markets, “so it takes a little longer for us to liquidate to maximise the price”.

According to Djounov, the fund range delivered net positive returns in 2018 and year-to-date, “even in liquidation, because the assets in the portfolio are not impaired, they are illiquid.

“[Investors] are clearly disappointed that it has taken as long as it has for us to pay them all their capital, but we expect the final distributions to come in the next few months.

“From Gam’s perspective, we’re closer to the end than the beginning in closing the chapter.”

Lessons learned

He noted some lessons learned from the crisis. Some policies that Haywood allegedly breached, such as gifts and entertainment and personal devices for business purposes, “are notoriously difficult to police”, he said.

“So we beefed up education on these policies, significantly strengthening compliance and risk management culture.”

Another area was signature policies — a director of an asset management firm signing off on behalf of the entire firm. “We learned don’t put investment managers in these unique positions. All of our investment managers have stepped down from the boards of management companies.”

The concept of the “star manager” was also scrutinized. “We will not focus on one or two lead portfolio managers. We’ll give investors exposure to the entire [investment] team — put the team in client-facing situations,” Djounov said.

Emerging markets

Djounov said he intends to continue efforts to regain trust and he looks forward to focusing on expansion of the firm’s Asia business.

Four investment team members – all equity specialists — are based in Hong Kong, which has a total staff of 32. The firm also has nine in Tokyo for discretionary investment management and four in Australia for sales, distribution and risk management.

Emerging markets are a core area for Gam, he said.

The firm has a $10bn emerging markets fund franchise and in Hong Kong recently brought in Rob Mumford for its global emerging markets equities team.

Another priority is developing Asian credit investment ideas. Amy Kam, Asian credit portfolio manager, has expertise in that area, he said.

Although Gam has strong interest in China, it is still reviewing options on how to proceed. Previous joint venture agreements with mainland firms did not pan out because the whole onshore industry scaled back global ambitions as GDP growth slowed, he said.

“Now we’re looking at going alone and evaluating all the options, but we haven’t yet pushed a button to set up an onshore WFOE [structure].”

Djounov said another key market in Asia is Thailand, which the firm entered three years ago. Plans are to grow the business and diversify product offerings.

Previously, Gam in Asia was emphasizing its niche alternatives, such as catastrophe bonds and private lending strategies.

“Alts will continue to grow because they are lowly-correlated to global markets, but we’ve grown beyond niche alts,” Djounov said.

 

 

 

 

 

 

 

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