Gartmore May Face Withdrawals After Investigation

Date: Thursday, April 1, 2010
Author: Bloomberg

Gartmore Group Ltd. may suffer client withdrawals following the suspension of Guillaume Rambourg, who helps oversee its two biggest hedge funds, analysts said.

“I don’t see why anyone would want to put their money into Gartmore funds,” Katrina Hart, an analyst at Cannacord Adams, said in a telephone interview today. “Once you get these reputational question marks, it is very, very difficult to contain.” The London-based analyst today cut her rating on Gartmore to “sell” from “hold.”

Gartmore plunged 31 percent yesterday following the announcement of the investigation. The shares climbed 9.5 percent to 127 pence as of 12:07 p.m. in London trading today.

The probe of Rambourg relates “to breaches of internal procedures regarding directing trades,” the firm said in a statement yesterday. It isn’t connected with last week’s arrests of seven people suspected of insider trading, the London-based money manager said.

“Gartmore has not identified any information to date which suggests that Gartmore’s clients have suffered any loss as a result of these breaches,” the firm said.

Roger Guy will oversee the assets Rambourg managed in the meantime. Caroline Villiers, a spokeswoman for Gartmore, wasn’t immediately available for comment.

‘Franchise Damage’

“Franchise damage would arguably be irrational, but it is, in our view, a scenario worth at least considering,” Bank of America Merrill Lynch analyst Philip Middleton said in a note to clients today as he put his “buy” rating on the shares under review. Gartmore’s European hedge funds “have been a flagship product for the company” and are “a key plank of Gartmore’s expansion strategy.”

Rambourg joined Gartmore in 1995 and focused on European equities. He co-managed the firm’s $2.3 billion Alphagen Capella fund with Guy since it started in 2000. The pair managed 8.1 billion pounds ($12.2 billion), 37 percent of Gartmore’s assets and accounted for 40 percent of the firm’s revenue, according to company filings.

Rambourg, 39, is an essential employee whose departure “could impact more heavily on Gartmore’s business than the loss of others,” according to the company’s prospectus. Rambourg owns about 11.8 million Gartmore shares, making him the second- largest employee investor behind Guy.

‘Lemmings’

“Institutional investor psychology is driven by consultants, who are trained to be conservative, and will probably be advising investors to redeem at least 10 percent to show they’re unhappy,” said Joe Seet, senior partner at Sigma Partnership, a London hedge fund advisory firm. “Unfortunately, the institutional investors are all lemmings.”

Seet, who has personally invested in one of Rambourg and Guy’s funds, said he will not be withdrawing his money. “Some people will stay because they know Guy is in charge and trust him,” he said.

Rambourg, who also co-manages the $828 million Alphagen Tucana Fund, and a former Gartmore European equity analyst were fined by Italy’s stock market regulator for abusing privileged information about Banca Italease SpA stock in 2006, according to a statement posted on the watchdog’s Web site last week.

Rambourg was fined 300,000 euros ($402,000) for buying shares of Italease for Alphagen Tucana after his colleague Vanni Vecchini told him of a forthcoming Citigroup Inc. analyst note that would recommend the shares, Consob said. Rambourg, whose fund bought 97,500 Italease shares, should have recognized the information he received was privileged, Consob said.

Alphagen Capella

The internal investigation isn’t related to the Italian fine, according to a person close to the company who declined to be identified because the probe is internal.

Alphagen Capella, which bets on rising or falling equities, rose 12 percent in 2009. That pool has an average 7.3 percent annual return over the past five years. The Alphagen Tucana Fund, which Rambourg runs with Guy, rose 42 percent last year and 11 percent annually over the past five years, according to data compiled by Bloomberg.

In June, Gartmore hired John Bennett, a 16-year veteran of GAM Holding Ltd. in London, to lead a team managing European equity mutual fund assets and help reduce the firm’s reliance on Guy and Rambourg.

Born in Ottowa, Rambourg graduated from ESSEC, one of France’s top business schools, in 1993 after majoring in finance, according to Gartmore’s Web site. He became an associate member of the U.K. Society of Investment Professionals in 1997.