The Reach for Yield Finally Claims a Fund Victim

In various presentations to investors in recent years, GAM's chief executive Alex Friedman championed the push into new investment categories, including trade finance. As banks cut the proportion of their balance sheets they were prepared to commit to funding cross-border goods and services via letters of credit, bills of exchange and other short-term loans, non-bank lenders such as investment firms and pension funds have stepped in.

And while the credit profile of such investments looks great, with low default rates in both trade finance and private debt, the returns come with a risk attached: The lack of an efficient, liquid secondary market when the holder needs to sell.

Friedman is looking at a stock-market meltdown, with GAM shares losing almost half of their value this year.

The stock dropped more than 15 percent in the middle of last month after GAM issued a profit warning because of worse-than expected results from Cantab Capital Partners, a quant firm it bought in October 2017. That was followed by a 13 percent decline earlier this week when it suspended Haywood and published lackluster investment performance in its first-half results. Thursday's morning trading saw another 13 percent wiped off the value. Small wonder that its fund investors are twitchy.

For now, this is a GAM problem rather than one for the broader market. And it's entirely proper that it should halt redemptions rather than sacrifice values by dumping assets at whatever prices it can get. But it's a reminder to investors everywhere that – as the financial crisis a decade ago proved – when everyone rushes for the exit at once, values can get trampled swiftly and irredeemably.