The recent removal of Tim Haywood, the British star fund manager by Swiss asset manager GAM raised a lot of questions about the firm but also about Absolute Returns investment strategies.
Mr Haywood was suspended by GAM following an internal investigation with the help of an outside adviser. The company said the reasons for the suspension were his acceptance of gifts and perks without asking GAM beforehand ; for using his personal email for work and he also signed some contracts alone, instead of seeking a backup, and didn’t do adequate due diligence on some investments or make records accessible.
GAM claimed that it had not found any violation of client interests, that Mr. Haywood wasn’t found to be crooked or to have acted with a conflict of interest.
His suspension surprised the market as did their inept handling of the communication to both clients and analysts. The result was massive requests for withdrawals from the funds by clients.
Inexplicably, GAM then decided not to allow such withdrawals. The company said it had enough liquidity to fulfill redemption requests, but that to do so would lead to a ‘disproportional’ shift in their portfolio composition, at the expenses of investors who haven’t sought to exit.
In the days that followed, GAM decided that it would close down more than $7 billion worth of bond funds and return all the money to investors.
This episode shone a spotlight on the absolute returns investment asset class. Set up following the financial crash of 2008, absolute return funds were designed to provide growth in a low yield environment when cash and bond returns were close to zero. These funds were marketed as having the ability to provide positive returns in both rising and falling markets. Add to that the promise of a target return of between 2% and 8% per annum over a rolling 3-year period and these funds proved irresistible to advisers and investors alike.
The last 3-year performance of all managers in this space has, sadly failed miserably to reach those targets.