A hedge fund shareholder is demanding far-reaching changes of asset manager GAM – changes that appear essential when scrutinizing top management's treatment of the firm.
RBR Capital, a Zurich-based hedge fund controlled by Rudolf Bohli, has lifted its stake in GAM to 3.28 percent from 2.1 percent last week, according to stock exchange disclosure.
Bohli, who is acting on his own behalf as well as for other shareholders representing 0.23 percent of GAM's share capital, was preempted in his effort to replace company chairman Johannes de Gier – by the chairman himself, who said he won't seek reelection at April's investor meeting.
Turnaround Case
A look back at the last two years under de Gier and Chief Executive Alex Friedman, illustrate why Bohli has swooped in.
Friedman took the helm of GAM in 2015 with a view to lifting the asset manager into the industry's premier league: «My goal is to make GAM the leading global investment firm,» he told finews.ch shortly after his appointment.
Eighteen months later, even the perpetually optimistic Friedman has to concede that GAM is a turnaround case, not league winner.
RBR Strikes a Chord
Bohli and RBR Capital have emerged as prominent supporters of GAM's turnaround. And his efforts are in part being welcomed by shareholders in an informal dialogue among investors, sources familiar with the matter have told finews.com.
GAM's share price, which has gained roughly 10 percent since Bohli's demands surfaced, underscore that he may not be alone in his views.
Long-serving chairman de Gier has beat Bohli to the punch on at least one matter: he ceded his seat to Hugh Scott-Barrett, who will be proposed as board chairman instead.
Enrichment without Incentives
De Gier's stepping down is viewed by shareholders as a step in the right direction, finews.com has learned after speaking to several investors.
For one, de Gier is seen as having enriched himself at GAM by dint of his power.
Secondly, de Gier failed to install the type of incentives which would enable the type of long-term thinking needed to transform GAM into the type of asset management jewel that Friedman strives for.
Criticism is Founded
The two accusations are interlinked and speak to a sense of entitlement at GAM, and of an interest in bolstering personal profit over the well-being of the firm. GAM's management demands performance and accomplishment, but does not necessarily set the same yardstick for itself, one shareholder told finews.com.
The criticism is unusually harsh for the cozy world of Swiss finance, but also warranted: de Gier has drawn an annual salary of 1.3 million Swiss francs, as GAM's revenue has crumpled in recent years.
20 Percent Pay Rise
It was more than 5 million francs when de Gier was in the dual chairman-CEO role – an unusually high compensation for a relatively straightforward firm of just over 1,000 employees. Seven years ago, de Gier rubber-stamped a long-term incentive plan to pay out 66 million francs of profit to top executives.
CEO Friedman was paid 1 million francs more last year – 6.1 million francs in total – thanks to another such program.
Millions in Outflows
Friedmand's 20 percent pay rise stands in stark contrast to GAM's pre-tax profit collapse of nearly 40 percent, and of outflows last year of more than 10 billion francs.
In fact, GAM's underlying profit has tanked from 200 million francs to 120 million francs under Friedman's tenure. Managed assets in GAM's investment management unit have sunk to 68.2 billion francs, from 76.1 billion – without recent acquisitions, the figure would have been just 60 billion.
In the same period, with de Gier's backing, Friedman earned 26.4 million in total salary and benefits. An unkind interpretation from one shareholder is that under Friedman, GAM has been relegated to regional leagues, far from its premier league ambitions.
GAM Activism for Scant Revenue
The CEO has always been passionate when presenting asset manager's strategic initiatives and future prospects. But Friedman has also overseen a relatively high level of staff fluctuation, partly from shutting some funds and strengthening distribution. Last year, a large part of GAM's spending cuts were reaped by cutting jobs.
Friedman has also acquired three firms to keep GAM growing, most recently systematic trading firm Cantab in Cambridge for $280 million plus a 40 percent share of future performance fees. The deal wasn't universally applauded by shareholders due to its hefty price tag.
GAM management's lavish spending and compensation mentality stands in stark contrast with the firm's actual performance, one investor says.
Bonus Despite Poor Results
How truly motivated and incentivized is a CEO when he or she is granted a 15 million franc sign-on and paid a higher bonus despite far poorer performance?
The question is legitimate, especially considering top executives are tasked with infusing the ranks with the type of consistent performance mentality necessary for a firm to succeed. Top management leads by example in most firms: GAM is some distance from that reality.
