GAM Funds to Consider Strategic Alternatives'
March 20, 2006
Less than four months after investment manager GAM of New York and London was sold by parent UBS AG to bank giant Julius Baer of Zurich, Switzerland, GAM's five U.S.-based open-end mutual funds are going up for a full-scale review.
In a filing with the Securities and Exchange Commission earlier this month, GAM revealed that the board of directors of its funds will hold a board meeting in May and decide on the fate of the funds in the group. The filing indicated that the board's directors "have determined that it is in the best interests of the company that a review and evaluation of the future operations and strategic alternatives of each fund be undertaken." As such, the board will consider and address the current size of each fund as well as its prospects for growth.
GAM did not give any reason as to why the board had decided to consider what to do with the funds, which collectively have about $277 million in assets under management. Speculation is that the small size of the funds is making them too costly to continue operating. But a spokesman for GAM said that the funds' new parent, Julius Baer, had not initiated any strategic review.
Julius Baer signed an agreement on Sept. 5, 2005 to purchase GAM as part of a $2.9 billion acquisition that included the purchase of three other companies, all of them banks. UBS had itself acquired GAM in 1999. GAM was originally founded in 1983. The acquisition closed on Dec. 2, 2005.
The GAM funds lineup includes the $112 million GAM International Equity Fund, the $34 million Asia-Pacific Equity Fund, the $34 million GAM European Equity Fund, the $55 million GAMerica Fund and the $42 million GAM Gabelli Long-Short Fund, for which GAM and Gabelli Asset Management of Rye, N.Y., serve as co-investment advisors.
The lineup previously included the $47 million American Focus Equity Fund, which the board decided this past November to dissolve and finally liquidated in January.
Sell, Close or Merge?
It is not clear what "alternatives" the board will be considering, although the board could vote to close the smallest funds, merge some into others or even consider selling the funds to the highest bidder.
The board could even fuse the GAM funds into the established Julius Baer funds group, which Julius Baer Investment Management of New York manages. These five funds had a collective $36 million under management at year-end 2005 and are comprised of a total return bond fund, a global equity fund, a global high yield bond fund, a successful international equities fund that is currently closed and a second, nearly identical international equities fund that invests in larger-cap companies and is open to new investments, according to a Julius Baer spokeswoman. However, the firm declined to comment on its review of the GAM Funds.
Although a melding of the two fund groups is a possibility, it isn't likely.
In previous Julius Baer and GAM filings, the companies made it clear that the two were to be maintained as sister investment management firms with independent brands. However, they are jointly managed by David Solo, GAM's chief executive officer who is now also the head of the combined GAM and Julius Baer companies.
Alternative Funds Untouched
While GAM's traditional mutual funds' board considers alternatives, GAM's alternative investments unit in the U.S. appears safely rooted.
Over the past five years, GAM has registered a handful of hedge funds-of-funds with the SEC as part of its effort to make a play for the U.S. alternative investments market. Over the course of their registration, all have converted from limited partnerships to limited liability companies, and undergone a series of name changes. To date, three of the hedge funds-of-funds have yet to launch.
So far, the most successful has been the GAM Avalon Lancelot Fund, which currently sports $200 million in assets. But the only other hedge fund-of-funds to go live, the GAM Avalon Galahad Fund, garnered only $19 million and was shut down in November.
Still, according to company officials, GAM's alternatives investment unit is not up for sale. "The firm's registered hedge funds-of-funds are not under strategic review," a GAM spokesman said.
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