29 Apr 2010
Guillaume Rambourg’s return from almost a month's suspension at Gartmore Investment Ltd. has clarified a number of points. Roger Guy had always argued that Rambourg was only suspended due to overly onerous internal policies. If Rambourg’s registration is reinstated by the Financial Services Authority this view will be vindicated. Rambourg’s de-registration as an approved person with the FSA was an automatic consequence of his suspension, and was not requested by Gartmore (in contrast to Goldman’s request for Fabrice Tourre to be deregistered).
Rambourg’s only sin, in sum, was to direct trades to specific brokers after Gartmore introduced over the summer of 2009 a super strict policy to segregate fund managers from trade execution in order to reduce the chances of failing to obtain best execution. The directing of trades fell to 1% of Rambourg’s trade volume after the policy came into effect in May compared with around 5% for the whole of 2009 (including the period to August when training in the new policy was ongoing). Gartmore says the suspension was needed to get City law firm Clifford Chance to independently decide if any damage had been done by the trade directions.
Gartmore has reaffirmed that no client losses resulted from the choices of brokers. So, there was no impact on the equitable allocation of trades between the multiple clients, funds or accounts for which Rambourg had responsibility. Gartmore has also confirmed that the brokers in question did achieve best execution standards. And there is no suggestion that the trade direction might have breached guidelines on so-called ‘soft’ commissions where managers receive research related services in return for commissions. Finally, there is no truth to press suggestions that Rambourg’s suspension might be linked to recent arrests by the FSA focusing on alleged insider trading. All in all the whole affair seems like a overblown storm in a teacup.
The knee-jerk reaction in some quarters of suggesting Rambourg has been demoted and replaced by O’Dea does not stand up to closer scrutiny. Rambourg’s initial new job title of Investment Analyst is an interim measure because FSA re-registration is needed for him to resume his former role. The hiring of Darrel O’Dea, from Threadneedle, isn’t to fill the vacancy created by Rambourg’s suspension but to expand the team to three co-managers. This reflects the large number of products managed: three hedge funds, three UCITs funds and numerous long only mandates. O’Dea has a strong record, including having won seeding capital from Coronation Fund Managers for his first fund.
Gartmore won’t say whether Rambourg’s remuneration will change owing to this breach of compliance. What they can confirm is that he retains 3.9% of Gartmore and that whatever ‘bad actor’ clauses there may be in Rambourg’s contract, this breach of compliance won’t affect his stake in the firm. The clear intention is to restore Rambourg as one of three fund managers on the team, pending re-registration with the FSA when the regulator has digested the findings of Clifford Chance’s investigation. Further complicating the process is the change of Gartmore’s chief compliance officer in mid-April (replacing the predecessor who only joined in January 2010). Gartmore suggests that the delay in discovering the trading breaches was apparently due to the subtlety of the trade directions, which the firm says were “suggestions” rather than explicit orders.
Rambourg’s importance to Gartmore is substantial. Though he may have been at times presented as Roger Guy’s right hand man, some investors say their allocation depends as much on Rambourg as on Guy. Once May 1 fund flows are known, a planned May 18 statement may be brought forward to inform the market. If any investors have submitted pre-emptive redemption requests, these can be cancelled before Saturday. Thames River Capital is to restore their allocation to a full size position, having previously halved it, as a way to show continuing support for Gartmore whilst hedging their bets in case Rambourg didn’t return. “They will emerge stronger from a difficult situation,” says Ken Kinsey-Quick, Thames River’s head of multi-manager.
With Guy and Rambourg looking likely to be at Gartmore for the long haul, the stock surely looks too cheap on a mid-single digit price/earnings multiple. Certainly, there is a clear record of alpha generation in their funds and in other Gartmore products. This may give outside investors an edge: nobody inside Gartmore has been able to trade the stock since Rambourg was suspended because employees of the firm were deemed to have potentially inside information about his return.
Rambourg’s only sin, in sum, was to direct trades to specific brokers after Gartmore introduced over the summer of 2009 a super strict policy to segregate fund managers from trade execution in order to reduce the chances of failing to obtain best execution. The directing of trades fell to 1% of Rambourg’s trade volume after the policy came into effect in May compared with around 5% for the whole of 2009 (including the period to August when training in the new policy was ongoing). Gartmore says the suspension was needed to get City law firm Clifford Chance to independently decide if any damage had been done by the trade directions.
Gartmore has reaffirmed that no client losses resulted from the choices of brokers. So, there was no impact on the equitable allocation of trades between the multiple clients, funds or accounts for which Rambourg had responsibility. Gartmore has also confirmed that the brokers in question did achieve best execution standards. And there is no suggestion that the trade direction might have breached guidelines on so-called ‘soft’ commissions where managers receive research related services in return for commissions. Finally, there is no truth to press suggestions that Rambourg’s suspension might be linked to recent arrests by the FSA focusing on alleged insider trading. All in all the whole affair seems like a overblown storm in a teacup.
The knee-jerk reaction in some quarters of suggesting Rambourg has been demoted and replaced by O’Dea does not stand up to closer scrutiny. Rambourg’s initial new job title of Investment Analyst is an interim measure because FSA re-registration is needed for him to resume his former role. The hiring of Darrel O’Dea, from Threadneedle, isn’t to fill the vacancy created by Rambourg’s suspension but to expand the team to three co-managers. This reflects the large number of products managed: three hedge funds, three UCITs funds and numerous long only mandates. O’Dea has a strong record, including having won seeding capital from Coronation Fund Managers for his first fund.
Gartmore won’t say whether Rambourg’s remuneration will change owing to this breach of compliance. What they can confirm is that he retains 3.9% of Gartmore and that whatever ‘bad actor’ clauses there may be in Rambourg’s contract, this breach of compliance won’t affect his stake in the firm. The clear intention is to restore Rambourg as one of three fund managers on the team, pending re-registration with the FSA when the regulator has digested the findings of Clifford Chance’s investigation. Further complicating the process is the change of Gartmore’s chief compliance officer in mid-April (replacing the predecessor who only joined in January 2010). Gartmore suggests that the delay in discovering the trading breaches was apparently due to the subtlety of the trade directions, which the firm says were “suggestions” rather than explicit orders.
Rambourg’s importance to Gartmore is substantial. Though he may have been at times presented as Roger Guy’s right hand man, some investors say their allocation depends as much on Rambourg as on Guy. Once May 1 fund flows are known, a planned May 18 statement may be brought forward to inform the market. If any investors have submitted pre-emptive redemption requests, these can be cancelled before Saturday. Thames River Capital is to restore their allocation to a full size position, having previously halved it, as a way to show continuing support for Gartmore whilst hedging their bets in case Rambourg didn’t return. “They will emerge stronger from a difficult situation,” says Ken Kinsey-Quick, Thames River’s head of multi-manager.
With Guy and Rambourg looking likely to be at Gartmore for the long haul, the stock surely looks too cheap on a mid-single digit price/earnings multiple. Certainly, there is a clear record of alpha generation in their funds and in other Gartmore products. This may give outside investors an edge: nobody inside Gartmore has been able to trade the stock since Rambourg was suspended because employees of the firm were deemed to have potentially inside information about his return.
