Green Eggs And GAM

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What's going on?

Shares of Swiss investment manager GAM Investments tanked 17% on Tuesday after the company’s third-quarter update revealed investors were taking their cash back en masse.

What does this mean?

In July, a high-flying GAM manager responsible for some $11 billion of assets was suspended following an internal investigation that found his record-keeping and risk management procedures to be sub-par. Investment managers have to regularly show their clients (who potentially include your pension provider) exactly how their cash has been invested – so poor processes are a big deal.

Shortly thereafter, GAM decided to return all $11 billion to its rightful owners – and other investors, likely shaken by the scandal, took a further $5 billion from the pots of cash GAM was investing on their behalf. Since investment managers typically get paid a percentage of all the money they look after, GAM’s future revenues are probably in for a major hit.

Why should I care?

For markets: Money’s on the move.

Investors aren’t cuckoo about leaving cash lying around – so when they withdraw money from one place, it’s probably headed somewhere else. UK rival St James’s Place might be one candidate: it said on Tuesday that the amount of money it looks after was 4% higher than a year ago. And investment manager Fidelity, which recently cut fees on several of its products, probably hopes to entice new investors as rivals see money withdrawn.

The bigger picture: Panama papering over the cracks.

It was a bad day elsewhere in the cantons on Tuesday: Swiss private bank Julius Baer – which used to be part of the same company as GAM – announced plans to shut down its operations in Peru and Panama as part of a broader restructuring of its entire Latin American business. The Panamanian segment was recently thrust into the limelight because of a former employee’s billion-dollar money laundering. The bank wasn’t charged, but several others in Europe have been hit with fines for having inappropriate controls in place.

Originally posted as part of the Finimize daily email.

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