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The fall of a multi-billion pound bond fund manager

We look back at nine key dates in the development of the crisis which culminated in Haywood being fired

GAM has dismissed its star absolute return and fixed income head Timothy Haywood following an internal probe.

The news did not come as a major surprise after Haywood was suspended last July after a whistleblower flagged concerns over his risk management procedures. There were also suggestions he may have broken inducement rules too.  

GAM announced the sacking alongside its full-year numbers, which highlighted the devastating impact the turn of events has had on the business.

This included the liquidation of the CHF11 billion (£8.4 billion) Haywood oversaw. This triggered a domino effect, with clients pulling CHF 10 billion from GAM's fund range in 2018. Assets under management at the business fell by almost CHF30 billion to CHF56 billion over the year. 

The crisis should serve as a warning to other fund managers and firms who do not have the appropriate risk measures in place.  

We highlight the key moments as the GAM drama unfolded.  

 

 

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GAM has dismissed its star absolute return and fixed income head Timothy Haywood following an internal probe.

The news did not come as a major surprise after Haywood was suspended last July after a whistleblower flagged concerns over his risk management procedures. There were also suggestions he may have broken inducement rules too.  

GAM announced the sacking alongside its full-year numbers, which highlighted the devastating impact the turn of events has had on the business.

This included the liquidation of the CHF11 billion (£8.4 billion) Haywood oversaw. This triggered a domino effect, with clients pulling CHF 10 billion from GAM's fund range in 2018. Assets under management at the business fell by almost CHF30 billion to CHF56 billion over the year. 

The crisis should serve as a warning to other fund managers and firms who do not have the appropriate risk measures in place.  

We highlight the key moments as the GAM drama unfolded.  

 

 

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Haywood joins GAM as fixed income head

May 2009

Haywood joined GAM as head of its fixed income business after it acquired bond and foreign exchange investment firm Augustus Asset Managers, where he was both chief executive officer and chief investment officer and led the launch of its Sicav and hedge fund businesses.

He had worked at Augustus since 1998, which was part of private bank Julius Baer until he helped lead a management buyout in 2007. GAM acquired the firm in 2009, shortly before itself separating from Julius Baer to become a pure-play asset manager.

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Absolute return aversion drives GAM outflows

3 August 2016

Seven years later there were signs of pressure in GAM's absolute return business, although there was nothing to suggest anything untoward was occurring at the time. 

The firm reported in its half-year results for 2016 that outflows from its absolute return strategies led an almost CHF7 billion drop fall in assets in the six months to the end of June. 

Redemptions from the firm’s absolute return/unconstrained strategies totalled CHF2.6 billion for the sixth-month period. GAM said the redemptions were driven, in part, by the overhang of poor performance in 2014 but that performance was improving in 2016.

The now shuttered JB BF Absolute Return fund, which was co-managed by Daniel Sheard and Haywood, had lost 4% on a three-year total return basis to the end of June 2016 in euro terms, while the average manager in the bond strategies sector returned 3.5% over the same period.

 

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GAM suspends Haywood following investigation

31 July 2018

This was the key date in the crisis. After two years in which the firm fought to stem further outflows from the absolute return fund range, GAM suspended the then Citywire + rated Haywood following an internal investigation into his risk management and record keeping.

In a statement that coincided with a results update for the group, the asset manager said the investigation into Haywood had not raised concerns regarding his honesty.

 

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£5.6bn absolute return range trading suspended

2 August 2018

GAM then suspended dealing on its four unconstrained absolute return bond funds.

These were GAM Star Absolute Return Bond, GAM Star Absolute Return Bond Plus, GAM Return Bond Defender and GAM Star Dynamic Global Bond funds. Between them, they held CHF 7.3 billion (£5.6 billion) in client assets.

The house said it was forced to act after clients requested a 'high level of redemptions' following Haywood's suspension.

 

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GAM: Haywood broke inducement and dealing rules

6 August 2018

Shortly afterwards, GAM found Haywood had failed to conduct sufficient due diligence on some investments and breached company policy on gifts and entertainment.

The firm said that Haywood breached its signatory policy by signing off on contracts alone, where two signatures were necessary.

He was also said to have breached the company's gifts and entertainment policy by not asking for pre-approval and using his personal email for work purposes.

The revelations came shortly after reports the same day that traders at GAM contacted investment banks and institutions in an attempt to unwind positions ahead of Haywood's suspension.

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GAM to liquidate absolute return fund range

10 August 2018

A few days later GAM recommended the liquidation of the entire range of funds overseen by Haywood.

In a statement to shareholders, the fund board stated it had opted to liquidate all the suspended funds in the unconstrained/absolute return fund range.

These were the GAM Absolute Return Bond, GAM Absolute Return Bond Defender, GAM Absolute Return Bond Plus, GAM Star Absolute Return Bond, GAM Star Absolute Return Bond Defender, GAM Star Absolute Return Plus, GAM Star Dynamic Global Bond, GAM Absolute Return Bond Master and GAM Unconstrained Bond funds.

 

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Absolute return fund investments come under scrutiny

23 August 2018

Following Haywood's suspension, the investments made by his flagship Absolute Return Bond fund came under further scrutiny.

According to the Financial Times, as of 30 April the fund's top 25 holdings included both junk-rated aircraft lease debt and an esoteric payment-in-kind note at a US real estate company.

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GAM: Haywood probe was launched by whistleblowing colleague

25 September 2018

In September GAM revealed that the investigation into Haywood was launched following a tip-off from an internal whistleblower at the firm.

Financial media site finews.asia reported that concerns over his trades had been passed to management by his ‘long-time [professional] partner’ late in 2017, and were subsequently passed to the Financial Conduct Authority.

The unnamed individual was said to have formed a ‘dream team’ with Haywood through 12 years of co-investment, during which they became pivotal to GAM's performance.

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'Serious failings' found as GAM dismisses Haywood

21 February 2019

Haywood's dismissal for 'gross misconduct' was announced as part of the company’s annual results for 2018.

The firm's investigation found he had shown a ‘serious failure to achieve the standard of skill and care which were to be expected of someone in his position’.

GAM also said 89-92% of the Luxembourg- and Irish-domiciled Ucits absolute return mandates, and 66-72% of the assets in the Cayman master fund and the associated Cayman and Australian feeder funds were returned to clients since they were suspended last summer. 

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