GAM is shutting a fund after Credit Suisse acted to close exposure to a specialist field - supply-chain finance - which became stressed by problems at a UK-based firm called Greensill Capital. The saga also shows how certain "alternative finance" forms have mushroomed.
GAM Investments is closing a fund that invests in supply-chain finance at a time when Greensill, a prominent firm in the space, is reportedly mulling insolvency. It acted after Credit Suisse suspended $10 billion of funds linked to the Greensill business after worries about exposure to a single client.
The Zurich-listed asset management firm said yesterday that it has shut the GAM Greensill Supply Chain Finance fund to subscriptions and redemptions “as a result of recent market developments and resulting media coverage related to supply-chain finance.” “GAM will ensure that all clients are treated fairly and is embarking on the process of returning their full investment to them in an orderly manner,” it said.
Supply-chain finance is a type of cash advance, similar to invoice finance, based on the credit rating of companies in the supply chain. Smaller firms can benefit from the higher credit scores of their buyers, and buyers can extend payment terms. It has traditionally been a field for large banks. The field is an example of what might be called alternative finance, and has attracted funds at a time when more conventional lending has been squeezed by ultra-low/negative interest rates.
Greensill Capital, based in London and founded by former banker Lex Greensill, is discussing a possible insolvency within days, according to various reports (Bloomberg, Wall Street Journal, others).
Credit Suisse worried about Greensill’s exposure to a single client, UK-based steel magnate Sanjeev Gupta (Wall Street Journal, 28 February). Gupta is a former Greensill shareholder and Greensill has supplied financing to his GFG Alliance group of companies, which created a metals empire by acquiring failed steel mills and other distressed industrial businesses. In February, a bid by one of Gupta’s companies to acquire the steel operations of Germany’s Thyssenkrupp AG failed after the latter company ended talks over a deal, the newspaper said.
“It is the fiduciary responsibility of Credit Suisse Asset Management to act in the best interest of investors in its funds. A certain part of the subfunds’ assets is currently subject to considerable uncertainties with respect to their accurate valuation. Therefore, to prevent any detriment to the subfunds and their investors as might result from such valuation uncertainty, it has been decided to suspend the calculation of the net asset value per share as well as the issuance, redemption and conversion of shares from or into the subfunds with effect as of 1st March 2021,” the Zurich-listed lender said.
“Greensill confirms that it has entered a period of exclusivity with a leading global financial institution with a view to concluding a transaction with them this week,” Greensill told WealthBriefing in a statement. “The transaction is expected to include large parts of Greensill’s business and its assets under management. While the structure of the new business is still being determined, we expect the transaction will ensure the majority of Greensill clients will continue to be funded in the same way as they currently are while also preserving a substantial number of jobs.”
GAM said that its affected portfolio only holds investment grade assets, tapping into payment obligations from “globally recognised multinational corporations.” The assets are fully insured against default by third-party insurers with a minimum credit rating of single-A.
“There are no concerns regarding the valuation of the assets in the fund. The fund was available to qualified investors only and currently has a total of $842 million of assets with less than 10 clients in the fund. GAM’s associated run rate revenues from this fund are approximately SFr1 million ($1.09 million) per annum. As of today GAM is waiving future fees on the fund,” it said.
“All assets within the fund have a final maturity of 12 months or less, with a weighted average life of less than 60 days and are held and protected in Luxembourg-domiciled structures. The closure of the Supply Chain Finance fund marks the end of GAM’s business relationship with Greensill which dates back to 2016,” GAM added.
The WSJ noted that in supply-chain finance, Greensill competes with traditional banks such as Citigroup and JP Morgan for investment-grade clients. Some of Greensill’s clients include AstraZeneca and Ford Motor Co. The report said Greensill has recently tried to raise up to $1 billion in capital that would have valued the company at $7 billion. That process stalled as the firm tried to cope with exposure to Gupta’s businesses.