Krupa Global Puts Deadline on GAM to Change

The Czech activist investment firm is pushing GAM to create a strategy plan to stem outflows by the time the asset manager releases its complete full-year results in February.

Prague, Czech Republic. (Martin Divisek/Bloomberg)

Prague, Czech Republic.

(Martin Divisek/Bloomberg)

Just ten days after GAM Holding released its preliminary full-year results for 2019, one of its shareholders is pressing the firm for more change.

Czech activist investment firm Krupa Global Investments urged GAM on Monday to create a strategy to stem asset outflows by the time it releases complete full-year results in February, reiterating a December plea for GAM to restore profitability.

According to Krupa, which manages a total of $2 billion, if GAM fails to succeed, it will face increased pressure from Krupa to attract a strategic investor. Krupa, which in December revealed it had increased its stake in GAM to three percent, has since increased its position in the firm further, according to its announcement. A spokesperson did not immediately return an email seeking details on that position increase.

“We bought more shares of GAM recently because we have faith in future prospects of this business and its importance, but we are not satisfied with management’s silence and communication towards investors,” said Krupa’s chairman, Pavol Krupa, in a statement.

GAM has faced large asset outflows since July 2018, when the firm announced that it would liquidate its unconstrained/absolute return bond funds.

Following this, the firm fired the director of those funds for allegedly failing to conduct enough due diligence on certain investments. Since then, GAM lost several high-level staff members. The firm then announced that it would work to complete a restructuring process.

But in 2019, GAM still bled assets. According to its preliminary full-year results, released January 17, its assets under management declined from CHF 56.1 billion ($57.8 billion) in 2018 to CHF 48 billion in 2019, a loss of roughly CHF 8.1 billion.

This drove a steep decline in underlying profits before taxes, from CHF 126.7 million in 2018 to CHF 10 million in 2019, the announcement said. A spokesperson for GAM declined to comment on Monday.

[II Deep Dive: Stop the Outflows, Activist Shareholder Urges GAM]

“This decline came in times when global markets are performing extraordinarily well, which is not a good sign in our opinion,” according to Krupa’s announcement. Krupa began its activist campaign in July 2019, acquiring a one-percent stake in the firm.

Krupa is suggesting that GAM create an independent committee of shareholders to evaluate options for GAM, including a search for a strategic investor.

The firm’s announcement showed that it also wants GAM to provide an “exact and detailed” strategic update on how to handle “this crisis” going forward, or a plan for how to proceed with a sale for the business, along with its complete full-year results.

If GAM does not provide this update, Krupa said it will recommend a new board member. “This representative will act as a watchdog of a board and their decisions,” according to the announcement.