GAM has been accused by the Swiss stock exchange of a “potentially material misstatement” in its accounting for its ill-fated purchase of a UK hedge fund in the latest blow to the asset manager.
SIX Exchange’s regulation body said on Wednesday it is seeking a sanction against GAM after an investigation found “alleged deficiencies” in how GAM accounted for its 2016 purchase of Cantab Capital Partners.
The move adds further pressure on the Swiss asset manager which is still reeling from a tumultuous year in which it liquidated its absolute return bond fund range and parted ways with the funds’ manager, Tim Haywood, after a high-profile dispute.
Staff at GAM, which has suffered a 43 per cent share price fall over the past year, are bracing for job cuts as the group overhauls its operating model and slashes costs under its new chief executive Peter Sanderson, who took over in September.
SIX Exchange said the alleged misstatement concerned GAM’s “treatment of a financial liability” in its 2017 annual financial statements concerning the purchase of Cantab, a hedge fund which specialised in algorithmic or systematic investing.
“GAM Holding AG has presumably failed to estimate this obligation and to recognise a financial liability as of the acquisition date and at subsequent balance sheet dates,” SIX Exchange said.
It also said that as a result, the liability was “understated” in the 2017 balance sheet and “a potentially significant revaluation effect has not been recognised in the income statement.”
Zurich-based GAM said it objected to SIX Exchange’s allegations: “GAM takes its financial reporting responsibility very seriously, disagrees with the position taken by SIX and stands by its previously published consolidated financial statements. It has therefore filed reasoned objections to the sanctions proposal,” it said.
Shares in GAM fell 1 per cent to Sfr2.8 in early Wednesday morning trading.
The Cantab deal was billed by GAM, at the time of its acquisition, as the “cornerstone” for a new quantitative investing unit. However, it was at the centre of a damaging profit warning last summer.
GAM took a SFr59m write-off related to the purchase, blaming tough market conditions for underperformance at the fund. It made an upfront cash purchase of $217m in 2016 for Cantab.
GAM said if it were unsuccessful in defending its position on the accounting issue, it would need to recognise the liability at fair value on its next financial statement and “restate any impacted historical comparative amounts”.
“This accounting matter would have no impact on the group’s cash flow position as any liability would only crystallise once matching performance fees are received by the firm,” it said.
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