Soros bets on GAM as scandal-hit Swiss firm courts buyers

Soros Fund Management Chairman George Soros built GAM Holding through a subsidiary of his family’s office. (AFP pic)

ZURICH: Billionaire investor George Soros disclosed a 3% stake in GAM Holding after the asset manager lost two-thirds of its value over a scandal involving a former star bond trader.

Soros, who rose to fame with a successful bet against the Bank of England in 1992, built the holding through a subsidiary of his family office, according to the local exchange. GAM rose as much as 20% in Zurich trading.

Soros’s firm joins bargain hunter Mario Gabelli in taking a stake in the Swiss firm, which is still bleeding assets after suspending star bond manager Tim Haywood last year.

The company has suffered about US$28 billion in outflows since the scandal broke. GAM is now reviving efforts to sell itself after previous attempts stalled, people familiar with the matter said last month.

GAM rose 18% at 1:30pm in Zurich, paring losses in the past year to 69%.

Relative bargain

The long slump in the stock has made it a relative bargain. The company has a market value of 725 million francs (US$723 million) and oversees US$135 billion in assets.

That means investors assign about US$5 million in market value for every US$1 billion the firm oversees.

Janus Henderson, by comparison, trades at US$12 million market value for every US$1 billion in assets. At Franklin Resources, it’s twice that.

GAM has gauged interest from banks, asset managers and insurers, according to the people familiar.

Most of the money GAM oversees is in the low-margin private labeling business, but the company still runs about US$55 billion in its own investment strategies.

That includes credit, local emerging market bonds, mortgage-backed securities, catastrophe bonds and emerging markets stocks.

Many of them were ranked in the top quartile by Morningstar over three years.

Credit Opportunities, managed by Anthony Smouha, and the Local Emerging Bond Fund, run by Paul McNamara, have both been hit by withdrawals after the Haywood scandal but still managed more than US$15 billion combined as of the end of December.

Running high

Soros’s motivations aren’t clear but the investment by his family office, which oversees about US$25 billion, comes at a time when speculation about mergers in asset management runs high.

Many firms are under pressure from an investor flight to cheaper, passive funds.

DWS Group, the asset manager controlled by Deutsche Bank has held preliminary talks on teaming up with firms including UBS Group, Axa and Amundi as it looks for ways to boost its size, people familiar with the matter said last month. German insurer Allianz was also said to be interested.

In the US Legg Mason is cutting 120 people, or about 12% of staff, and streamlining its executive committee after adding activist investor Nelson Peltz to its board.

The firm had been on an acquisition spree in recent years, adding affiliates QS Investors, Martin Currie, RARE Infrastructure, Clarion Partners and a stake in Precidian Investments.