Fermat cat bond fund importance to GAM is clear, as cited in ownership tussle

The importance of the Fermat Capital Management catastrophe bond funds to global asset manager GAM Investments has become abundantly clear, with disclosures related to the GAM Holding acquisition by Liontrust suggesting Fermat is responsible for as much as 21% of the assets and revenues of the firm.

Specialist catastrophe bond investment manager Fermat Capital Management has been unwittingly dragged into the ownership tussle over the asset manager’s holding company, GAM Holding AG.

Recall that, GAM Holding AG, the parent company to GAM Investments, has been heading for an acquisition by specialist fund management group Liontrust.

The acquisition would see all of the GAM investment funds rebranded, which we assume would include its large GAM Star Cat Bond Fund and other ILS strategies that are portfolio managed by Fermat Capital Management.

As we later reported, a counter-offer from investor group NewGAMe and Bruellan offered to buy GAM’s shares at a 29.1% premium to the Liontrust arrangement, but the GAM board said it would continue to pursue the Liontrust offer, as it is a full acquisition rather than an acquisition of some shares..

The deadline for the offer period related to the Liontrust offer is today, with the results set to be announced tomorrow, so this is a critical point in the process.

But, in the last week, disclosures show Fermat Capital Management being dragged into the tussle over GAM, further driving home the importance of the relationship and also the significant value Fermat has generated for GAM over the years.

What’s happened is that, according to the NewGAMe investor group, John Ions, Chief Executive of Liontrust, had emailed a number of GAM shareholders and invited them to a discussion with John Seo, Managing Director and co-founder of Fermat Capital Management.

Ions said that Fermat Capital is “a key third-party manager for GAM and that he had been in “regular contact” with Fermat’s John Seo and said that Seo “has been very supportive of the Liontrust offer and equally as frustrated with the NewGame approach and the lack of understanding of the business requirements.”

He went on to explain to the shareholders that he feels that Fermat could walk away from GAM, if the Liontrust offer is not successful.

Ions stated that “John Seo has also questioned the integrity of NewGAMe, and, having suffered long enough (as you have) with GAM executive management, is in no mind to lunge straight into a relationship with people he does not trust and, therefore, is seriously thinking about giving GAM notice if NewGAMe prevail.”

He also said that, “Understanding that the Liontrust deal is the only viable option, John Seo is keen to have a call with you so you can hear first-hand his thoughts and he can answer any questions you will no doubt have.”

After this email came out, the NewGAMe SA Director Albert Saporta wrote to John Seo of Fermat, making him aware of Ions email to shareholders and saying “I would hope to think that, even though John Ions may not trust our group, his words do not reflect your views.”

To which John Seo responded, “Thank you for bringing this to my attention. I am shocked and dismayed by this email. I called John Ions immediately. He will retract the email. I never wrote those words, and I would never approve of those words.”

Which is an intriguing turn of events in the battle over the ownership of GAM Holdings and its investment operations.

But, more interesting than who said what and how accurate, or misleading it has been, the fact Fermat Capital Management is cited in this exchange is a clear signal of the importance of the relationship for GAM and the significant value created through it.

Ions email explains the importance of the GAM relationship with Fermat Capital and in it he reveals some figures that really drive home the significant value creation of the catastrophe bond funds managed for GAM Investments (remember, GAM distributes the successful Fermat UCITS cat bond funds and some other strategies outside the US).

“To illustrate the importance of Fermat to GAM, AuM is around CHF 5 billion and GAM’s share of the revenue is on a margin in line with the group average i.e. Fermat is 21% of both GAM’s AuM and revenues,” Ions wrote.

When you consider the size of GAM, versus the size of Fermat, and then the fact Fermat has been responsible for just over one-fifth of the investment managers assets under management and revenues, it really drives home how successful this partnership has been, the significant value created through it and the importance of the partnership for GAM as its future gets decided.