The GFG deals were brokered by none other former GAM CEO David Solo (pictured below). Since leaving GAM four years ago, Solo has advised Greensill, an U.K-based lending startup which was instrumental in linking up Haywood at GAM and Gupta's GFG.
The notes in question were backed by physical power plants in the U.K, two people familiar with the investments told finews.asia. The investment hit a glitch when accreditation for the plants was pushed back by one year by U.K. power regulator Ofgem.
Appeal To U.K. Watchdog
This in turn distorted the liquidity risk of Haywood’s investments – though both people familiar with the matter say the metric was still within GAM’s limits (the company has said Haywood didn’t violate investment guidelines or policy).
Nevertheless, the episode appears to have been the trigger for the whistleblower, who first raised alarm inside GAM late last year, according to one person. Several months later, in March of this year, the whistleblower told the company that he had also filed a complaint to the U.K. regulator, the person said.
The move – and possibly additional information provided to the Financial Conduct Authority that the whistleblower didn't disclose to GAM last year – led to a widening of the probe within GAM. A spokesman for the FCA declined to comment.
Panicked Clients
The move wrought chaos on the company. The FCA tightened whistleblowing rules last year, part of a bid to encourage employees to report wrong-doing.
On July 31, Haywood was suspended. What followed has been well-documented: GAM has lost more than one-third of its market capitalization since then, as panicked investors and clients headed for the exits.
To stand in for Haywood, the company raised eyebrows by passing over the long-time co-manager, the natural choice, in favor of Jack Flaherty and Alex McKnight. Neither Flaherty or McKnight has the expertise of Haywood or his former co-manager with unconstrained bond strategy funds – which are those not tied to a particular benchmark or sub-category of fixed income.
CEO Under Fire
GAM CEO Alex Friedman is under heavy fire for his handling of the matter, which has imperiled GAM’s prospects to remain independent. On Friday, company told investors in three Luxembourg funds they would receive a higher-than-expected percentage of their investment back as part of the dismantling of the ARBF business managed by Haywood.
Meanwhile, the Gupta notes, issued in April and August of last year, are set to be redeemed shortly, according to two people familiar with the matter. They are in the money – meaning ARBF will likely end up making a profit for GAM on the transaction.
- << Back
- Page 2 of 2
