Swiss asset manager GAM Holding said it will double its cost-cutting efforts over the next two years in a move to become more efficient and transparent—and to achieve operating margins of 30% in the wake of a dismal fiscal 2019. It also said its board and CEO would forgo bonuses.
The move comes as GAM reported that underlying profits before taxes plummeted 92% to CHF10.5 million in 2019 from CHF126.7 million in 2018, which it said was driven by lower net fee and commission income.
Net fee and commission income tumbled 34% to CHF329.9 million from CHF499.9 million in 2018. The company attributed the decline to lower net management fees and commissions as a result of lower average assets under management (AUM) and lower management fee margins in investment management and private labeling.
Despite 78% and 74% of investment management assets under management outperforming their benchmark over five years and three years, respectively, the firm’s investment management assets under management fell to CHF48.4 billion from CHF56.1 billion in 2018.
In response to the poor performance, CEO Peter Sanderson, who was appointed to lead the company in September, announced cost-cutting measures that will add another CHF40 million ($40.8 million) in savings to bring the total amount saved to more than CHF80 million by 2022. Sanderson said his strategy for the company is based on three pillars: efficiency, transparency, and growth with clear financial targets.
As part of the cost-cutting measures, Sanderson also said the company’s group management board members will receive not receive bonuses for 2019 and that he will forego a contractual fixed cash award of CHF250,000 ($256,000) due to him this year. Additionally, the company’s board of directors will not propose a dividend for fiscal year 2019.
“The strategy we are outlining today will build long-term shareholder value,” Sanderson said in statement. “We will become more transparent and have set clear targets against which we will be measured. There are clear avenues to growth by building on our core strengths in client service and differentiated products.”
In addition to the CHF80 million in savings as part of the efficiency pillar, Sanderson said the transparency pillar will consist of increasing clarity, including recognition of the benefits that the company’s private labeling business creates for shareholders. As of end of September, GAM’s private labeling unit had more than CHF84.3 billion of third-party fund assets under management.
And, as part of the growth pillar, Sanderson said the company will build on its core strengths to attract and retain talent, incentivized over the long term, to grow the business and drive sustainable asset under management inflows.