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Gartmore Shows U.K. Firms Wary as FSA Pursues Traders (Update3)
April 01, 2010, 12:15 PM EDT
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(Closes shares in 14th paragraph.)
By Tom Cahill and Sarah Jones
April 1 (Bloomberg) -- Gartmore Group Ltd.’s suspension this week of hedge-fund manager Guillaume Rambourg underscores heightened caution among U.K. companies as the Financial Services Authority cracks down on illegal trading.
“A number of people said this sounds like this is a little bit too far, too much of a rap on the knuckles,” Jeffrey Meyer, chief executive officer of London-based Gartmore, said in a telephone interview yesterday. “But we were in consultation with the FSA. We got their views on the situation.”
Rambourg, a 15-year veteran of the firm who runs marathons to raise money for charity, may have directed buy and sell orders to favored brokers in violation of internal rules, Meyer said. The firm has a central desk with responsibility for routing trades. Its compliance managers uncovered the breaches late on March 24, and the FSA was alerted the next day.
Gartmore announced its decision on March 30, a week after the FSA, the primary financial-services regulator in Britain, arrested employees of Deutsche Bank AG, Exane BNP Paribas and Moore Capital Management LLC in a probe of insider trading. In a separate case, the FSA yesterday charged seven people in connection with an insider-trading ring that prosecutors said made about 2.5 million pounds ($3.8 million) in illegal profits.
The Conservative Party said it wants to phase out the FSA, which Prime Minister Gordon Brown created in 1997 while finance minister. The Conservatives, who are squaring off with Brown’s Labour Party in an election that must be held by June 3, argue the agency was too lax and was partly to blame for the worst market turmoil in a generation.
FSA More Aggressive
Gartmore’s decision to suspend Rambourg shows that what may have once been considered minor infractions are now being dealt with harshly, said Jon Moulton, founder and chairman of Better Capital Ltd., a London-based investment manager.
“There’s bound to be some worried traders out there,” said Moulton, the former managing partner of buyout firm Alchemy Partners LLP. “If you’re engaged in inappropriate behavior then this latest crackdown by the FSA must be pretty scary. The FSA is being much more aggressive than it used to be.”
Gartmore’s market value tumbled by almost a third within two hours of the suspension announcement. Rambourg, together with Roger Guy, managed 8.1 billion pounds, or more than a third of the firm’s assets. Guy isn’t under investigation, Gartmore said yesterday.
Guy Staying
“Boards are usually afraid of star fund managers, especially if they’re successful,” said Joe Seet, senior partner at Sigma Partnership, a London hedge-fund advisory firm. “It takes some guts to say the rules are the rules, no matter who you are.”
Speaking in a conference call with investors this morning, Guy reaffirmed his commitment to the money manager amid concern he may leave the firm after 18 years of service.
“I have a substantial amount of my own money invested in the funds that Guillaume and I run,” he said. “Very importantly, I have no intention of going anywhere else. I am totally committed to the firm.”
Traders increased their bets that Gartmore’s stock would fall before the probe was disclosed.
The percentage of shares on loan, which usually indicates short-selling interest, reached 23 percent on March 26, seven times the amount a month earlier, according to Data Explorers in London, a consultant on short selling and securities financing. Short sellers profit by borrowing shares on the expectation they will drop in price and be cheaper to buy and replace later.
Shares Rise
Gartmore jumped 12.8 percent, or 16 pence, to 141 pence in London trading, giving it a market value of 433 million pounds. The company lost about 43 percent of its value since its December initial public offering before today.
Rambourg ranks as the firm’s second-largest individual investor with 11.8 million shares, or 3.85 percent of the company, according to data compiled by Bloomberg. Guy is the largest individual investor with a 5.6 percent stake.
Rambourg, 39, spent more than a decade running some of the U.K.’s best-performing hedge funds.
He and Guy managed Gartmore’s $2.3 billion Alphagen Capella fund since it started in 1999 and the $828 million Alphagen Tucana Fund since its inception in 2005. Tucana returned 42 percent last year, ranking in the top 20 percent of similar funds, according to data compiled by Bloomberg. Capella rose 12 percent in 2009.
Industry Award
Two months ago, the pair collected the award for 2009’s best European Equity Fund of more than $500 million from EuroHedge, an industry publication that stages an annual black- tie awards dinner for more than 800 fund managers at Mayfair’s Grosvenor House Hotel.
“He’s been in the game for a long time and is one of the industry better respected individuals,” said Morten Spenner, chief executive officer of London-based International Asset Management Ltd., which manages $3 billion in hedge funds. “On the surface the situation doesn’t seem as grave as people have interpreted it to be.”
Born in Ottawa, Rambourg is the son of United Nations diplomat whose upbringing in New York left him with an American accent. He graduated from ESSEC, one of France’s top business schools, in 1993 after majoring in finance, and joined Gartmore in 1995, according to the firm’s Web site. He became an associate member of the U.K. Society of Investment Professionals in 1997. He didn’t respond to e-mails or calls for comment.
London Marathon
Rambourg last April completed the London Marathon in three hours and 11 minutes, finishing in the top 5 percent of runners. He raised 35,000 pounds for charities Peace One Day and Get Kids Going, according to an e-mail he sent thanking supporters.
“This is a guy that in my five years in dealing with him has acted with a great deal of integrity and respect and always puts the interest of his clients first,” Meyer said. Gartmore hasn’t suffered “material outflows yet,” he said.
Analysts said withdrawals may be coming.
“I don’t see why anyone would want to put their money into Gartmore funds,” Katrina Hart, an analyst at Cannacord Adams in London, said in a telephone interview yesterday. “Once you get these reputational question marks, it is very, very difficult to contain.” The analyst cut her rating on Gartmore to “sell” from “hold.”
--With reporting by Andrew MacAskill, Gavin Finch and Simon Clark in London. Editors: Larry Edelman, Steve Bailey.
To contact the reporters on this story: Tom Cahill in London at
[email protected]; Sarah Jones in London at
[email protected].
To contact the editor responsible for this story: Christian Baumgaertel in Boston at
[email protected]
