AUM fell to CHF 19.0bn compared to CHF 19.3bn as at 31 December 2023, while the IFRS net loss  lessened to CHF 39.1m compared to CHF 71.2m for the first half of 2023.

Underlying loss before tax was CHF 33.2m compared to CHF 22.5m for the first half of 2023 as cost optimisation initiatives across the business resulted in a 20% decrease in underlying expenses compared to first half of 2023.

GAM cited “strong investment performance with 79% of AUM beating their benchmark and 88% beating their benchmark over a three-year and five-year period respectively” with European equity strategies attracting material positive net inflows along with some net inflows across other strategies.

Overall net outflows totalled CHF 1.8bn for the first half of 2024.

The existing CHF 100 million loan facility remains in place until June 2025 with a possible maturity extension granted by Rock Investment SAS / NJJ Holding SAS if required, the asset manager said.

Among strategic changes it highlighted the enhancement of its regional presence and client coverage by hiring new heads of distribution for key markets, building out client teams, and opening new offices in Miami and Paris.

Elmar Zumbuehl, group CEO at GAM said: “We have made great progress in implementing our turnaround strategy and building the foundations for future growth and sustainable profitability. Our investment performance remains strong, and we are focused on our clients, enhancing distribution and launching new distinctive products, all to drive future positive net inflows. We are targeting to achieve profitability in fiscal year 2026.”

Anthony Maarek, Managing Director of NJJ Holding SAS said: “NJJ Holding is a committed long-term strategic shareholder of GAM, providing stability and support for its growth strategy. We have fully underwritten the rights issue and we are ready to extend the loan facility if needed. We value GAM’s heritage, unique financial and operating skills in the asset management sector and believe in its ability to grow and become profitable.”

GAM further said its “priority is to achieve sustainable overall positive net inflows by rebuilding GAM’s distribution capabilities with a focus on our existing products and new product launches. The timeline for achieving these net inflows will be supported by our success in delivering our strategy, subject to market conditions. GAM targets to achieve profitability in fiscal year 2026”.

Until the last two months of 2023, the last year had been substantially dominated by the Magnificent Seven, those US mega-caps with exposure to the nascent AI trend. The rest of the US market was left behind – the S&P 500 equal-weight index returned 13.9% over the year, compared to 26.3% for the standard S&P 500 index. Other markets round the globe also struggled to match the returns from these technology giants.

If inflation revives, or any recession proves more severe than expected, all bets may be off, but in the absence of those scenarios, two questions may be front of mind for investors: whether these mega cap technology companies can keep motoring, and whether market leadership can continue to broaden out to the rest of the market.

See also: Tech funds top the rankings for 2023

Many fund managers agree that valuations for the mega-caps now look stretched. In his 2024 outlook, Mark Hawtin, manager on the GAM Star Disruptive Growth fund says: “On the broadest measure, the S&P 500 trades on 18x 2024 expected earnings; this is above the average levels of the last 30 years. However, the equal-weighted S&P trades at 14x 2024 earnings, at the lower end of the average 30-year range. The forward PE of the M7 names is 29x and this is the key factor in our base case: that growth equities will remain robust but that the winners will come from below the M7 names.” Hawtin believes AI will still be important, but investors will focus on its real-world applications: healthcare, storage, and Software as a Service (SaaS).

There are other reasons to be cautious on the mega caps. Research from Evelyn Partners shows equity market concentration in the US is now at its highest level since the 1970s, with the ‘Magnificent Seven’ now representing 28% of the entire S&P 500 index. Equally, says AJ Bell investment director Russ Mould, if rate cuts do not appear on schedule, the aggregate $11.8trn market cap for these companies could look vulnerable: “Their share price and profit wobbles of 2022 showed they are not entirely immune to the economic cycle, so an unexpected recession could be one challenge. Sustained inflation could be another if it keeps rates higher than expected.”

However, few investors see an imminent collapse for these companies. For the most part, they are delivering high earnings, have a strong pipeline of growth and are likely to be supported by wide AI adoption over the next 12 months. It is difficult to see a scenario where markets make progress, but big tech companies collapse. Phil Haworth, head of equities at Aegon Asset Management says: “Few had anticipated these stocks outperforming their cheaper, smaller, more cyclical counterparts in a year of rising long real yields and surprisingly robust GDP growth. We believe the ‘magnificent seven’ may continue to perform well, especially those like Nvidia and Microsoft which are driving the development of AI.”

Broad-based growth

Nevertheless, Haworth says we should ‘absolutely’ expect greater market breadth in 2024. Andrew Bell, chief executive officer at Witan, says: “We’re positioned for a broad-based global recovery, where performance will be shared more widely than just seven stocks in the US market. Central banks are pausing interest rates. The pause is a turning point, not a pause on the way up. They will stick with their 2% inflation target, but interest rates will be falling way before we get to 2%, as long as the direction on inflation is right.”

“We think 2024 is going to be a year of recovery within a wider range of sectors in the market, across a wider range of countries.”

Alex Tedder, head of global and thematic equities at Schroders, agrees: “Investors will need to diversify more, while thinking much more about valuation, and focusing in on the structural trends that have become manifest in the last couple of years.”

“The ‘super seven’ have driven a re-rating in the US market, but are now trading on a negative yield gap, suggesting the market thinks they are more creditworthy than US treasuries.” He does not hold a negative view on the S&P 500 nor does he believe the rest of the S&P is egregiously valued. However, he adds, the capitalisation of “super seven” is greater than entire capitalisation of China, Japan, UK and France combined: “While these anomalies can persist for quite long periods, they do close over time. We think the rest of the world may catch up.”

He highlights China and Japan, but also the UK. He says the picture across emerging markets is improving because underlying rates of inflation are starting to fall. The inflation problems that used to weaken major emerging market economies appear to have dissipated. Equally, he says, there are certain markets where investors have given up: “China is a good example of that. Geopolitical concerns have seen it falling completely out of favour with international investors.” He believes Japan is also looking compelling, with the currency particularly weak and the economy competitive.

If there are no nasty surprises on inflation, and economies stick to their current path of a soft landing, investors may feel confident enough to explore other parts of the market and the Magnificent Seven may no longer dominate market returns. However, it is also difficult to see a scenario where big tech moves in a different direction to the broader market. While valuations are high, these companies can still make progress in the year ahead.

This article was written for our sister title Portfolio Adviser 

The failed deal, in which Liontrust originally sought to acquire GAM’s entire issued share capital, has incurred an £11m one-off charge for the firm, which includes corporate finances, legal expenses and third party due diligence.

Liontrust required 66% of shares to be tendered by yesterday’s deadline for its offer to proceed.

The deal has been plagued by investor opposition since it was first announced, with investor group NewGAMe, which owns 9.6% of GAM’s shares, lobbying against the deal for several months and even launching its own partial takeover bid at a 29.1% premium to the Liontrust proposal.

Deadline

The deadline for the deal was extended three times in total. On 23 August, further scandal erupted when Liontrust CEO John Ions was accused by NewGAMe of “aggressive tactics which are bordering illegality” as the group lodged a complaint with the Swiss Takeover Board.

On the failed acquisition, Ions said: “Liontrust made a full and fair offer for GAM, which reflected the financial reality of the business and would have provided a certain and sustainable solution.

“Throughout this process, Liontrust has sought to create corporate and financial stability for GAM and do what is in the best interests of its shareholders, clients and employees. We have always believed that Liontrust’s offer and strategy for ensuring the growth of the combined group is the best way to achieve this.”

At the initial time of interest (3 May), GAM’s share price was at a 16% discount to its closing price. Its share price had fallen by 96% over five years to May, following a string of scandals and disputes.

Dissapointed

In an open statement on 24 August Ions added: “We were impressed by the quality, dedication and professionalism of everyone we met at GAM including the investment managers and distribution teams around the world.

“We wanted to give this talent the platform to flourish and were excited by the fantastic potential for growing the combined businesses through providing the investment managers with the necessary profile and enhancing support for distribution.

“We are disappointed we did not win the support of the majority of GAM’s shareholders and are grateful to those GAM and Liontrust shareholders who did back our offer. We also thank everyone at GAM for working so hard to make our offer succeed.”

Ions said he hoped GAM is “able to achieve a positive outcome for the business”.

“GAM presented the opportunity to accelerate Liontrust’s strategic objectives. While this is not the result we wanted, our strategy will not change, with a continued focus on expanding distribution and the client base, diversifying the product range, attracting talent and enhancing the investor experience. The financial health of the Liontrust business, power of our brand, excellent investment teams and strength of sales and marketing gives me great confidence we will achieve these objectives.”

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This represents a 29.1% premium on the value of the Liontrust offer which they are seeking to scupper. NewGAMe and Bruellan’s calculation is based on Liontrust shares being priced at £6.43 on 17 July 2023 and a GBP/CHF exchange rate of 1.1251.

The investors already own 9.6% of GAM and if the offer becomes fully subscribed they would own another 17.5%, bringing the total to 27.1%.

Owning this much of GAM would effectively block Liontrust’s plan to complete a full takeover of the Swiss asset manager and integrate it into its business.

The Swiss based investors reiterated that they believe Liontrust’s offer “grossly undervalues” GAM and claimed it is subject to “execution contingencies” which make it highly unattractive.

Publicly opposed

NewGAMe and Bruellan have been publicly opposed to the takeover proposal since shortly after it was announced in April.

Last week, the investors laid out an investment thesis outlining an alternative path forward for the asset manager as an independent entity.

GAM has been stuck in a run of poor financial performance and is set to make a CHF 23m  loss this year having lost CHF 15m in the last financial year.

Earlier this week it was reported that GAM’s third largest shareholder Global Emerging Markets Group is also against the Liontrust bid.

In contrast, GAM’s largest single investor with 17.3% of the shares, Silchester International Investors, has said it is backing the Liontrust deal.

Albert Saporta, director of NewGAMe, commented: “The announced offer gives a partial exit to shareholders who are concerned by the absence of an alternative to Liontrust’s inadequate offer. As GAM’s second-largest shareholder, we are convinced there is a significant upside associated with the successful restructuring of the company and are confident that GAM shareholders are better off remaining invested in the company.”

Liontrust declined to offer comment.

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At a general meeting on 7 July, 84% voted in favour of the acquisition.

John Ions, chief executive of Liontrust, said: “We have made a good and fair offer for GAM and believe it is in the best interests of the shareholders of both companies, as well as clients and employees, by providing a great platform for growth along with corporate and financial stability for GAM. The senior investment managers at GAM have previously publicly stated they support the Liontrust acquisition and now we have the declared support of Liontrust shareholders. We thank both for their confidence in us and the proposed acquisition.”

The announcement follows GAM’s agreement to sell its third-party fund management services to Carne Group, which satisfied one of the requirements of the offer.

Despite being backed by the Swiss asset manager’s board and senior portfolio managers, the proposed takeover has come under opposition from investor group NewGAMe and Bruellan, who own roughly 9% of GAM.

When the offer was first announced, the investor group said the offer was unfair for GAM shareholders and “needlessly” favoured the bidder. They also raised concerns over the proposed offer’s consistency with Swiss takeover law.

In May, senior GAM portfolio managers penned a letter voicing “strong support” for the acquisition, stating the deal is “highly credible”.

The firm published the deal prospectus in June, which confirmed details such as the exchange ratio of 0.0589 Liontrust shares for each GAM share. It also set out a timetable for the offer of 28 June to 25 July.

David Jacob, chair of GAM said: “I am delighted that Liontrust shareholders strongly support the offer. The GAM board unanimously recommends the offer which was made after extensive due diligence by a highly regarded peer with a heritage in fund management.

“The enlarged business will have a strong balance sheet, a broader array of excellent investment products, a global distribution footprint and the capability to deliver synergies and growth, in which GAM shareholders can participate in the future. The Liontrust offer is also strongly supported by the senior portfolio managers of GAM, who believe that it is in the best interests of our clients.”