GAM fails to plug fund of funds leak

Date: Tuesday, November 16, 2010
Author: Harriet Agnew, Financial News

Swiss asset manager GAM continued to suffer outflows from its fund of funds business in the third quarter on the back of reduced appetite from private clients, bucking the trend of money returning to the the wider fund of funds industry.

GAM said in an interim management statement for the three months to September 30: "Funds of hedge funds and managed portfolios continued to experience net outflows, mainly from the third-party private client segment, driven in part by a shift in client preferences towards single manager and onshore products."

The group did not disclose the exact figure of net outflows from its fund of funds business over the period.

A spokeswoman for GAM Holding said that healthy institutional demand for fund of hedge funds was not enough to compensate for lower interest from private investors and their advisers, and attrition from former private bank distribution partners UBS and Julius Baer, although these negative effects have slowed in 2010.

She said that private clients are still reluctant to invest in hedge funds and GAM no longer has a banking distribution partner with a network of private clients to tap into.

The spokeswoman said that GAM is beefing up its distribution to both private clients and institutions. She said: "We are building up direct distribution to private clients and working with family offices, trustees and financial advisers but this takes time. Also, we have successfully diversified our product offering into areas that clients currently seek, such as onshore regulated single-manager funds."

Fund of funds are increasingly embracing an advisory models, where the manager advises the client on a range of issues including asset allocation, manager selection and due diligence. It is a service that is targeted at institutions wanting to move away from the traditional multi-strategy fund of funds model, but which may not have the experience or the governance to invest directly in hedge funds.

The interim management statement showed that GAM's alternatives business has a strong pipeline of potential business from institutional investors, and there is also demand for its regulated Ucits funds.

The outflows come as funds of hedge funds posted their first quarter of net inflows in the three months to September 30. Funds of funds took in $256m of net new money in the third quarter, according to Hedge Fund Research, only the second three-month period of net inflows in 10 quarters. Fund of funds firms Liongate Capital Management and Permal Group have both taken in net new money this year.

GAM's overall assets under management at September 30 were Sfr53.8bn, up about 2% from Sfr53.1bn at the end of June. The increase was driven by net new money inflows and market performance, although these effects were partly offset by the depreciation of the US dollar against the Swiss franc.

--Write to harriet.agnew@dowjones.com