SIX Exchange Regulation AG (SIX), the Swiss listing authority, has announced the submission of a sanction proposal to its Sanctions Commission in relation to a technical accounting matter at GAM Holding AG.
The matter relates to the recognition of future performance fee payments as a financial liability following GAM's acquisition of Cantab Capital Partners LLP (Cantab) in 2016.
GAM takes its financial reporting responsibility very seriously, disagrees with the position taken by SIX and stands by its previously published consolidated financial statements. It has therefore filed reasoned objections to the sanctions proposal.
When GAM acquired Cantab, 40% of all future performance fees were retained by Cantab's previous partners. SIX argue that this arrangement gave rise to a financial liability, which should have been measured at fair value and recognised as a financial liability at the time of the acquisition and subsequently re-measured each year, with any changes in value being recognised in GAM's consolidated income statement.
GAM's position, supported by its external auditors and an independent expert, is that no financial liability should be recognised until performance fees crystallise, at which point any liability to pay those fees is recognised and reflected in its consolidated financial statements along with a matching performance fee asset. GAM believes that this reflects a true and fair view of its financial position reported to shareholders and does not result in an income and expense mismatch.
This accounting matter relates to GAM Holding AG's consolidated financial statements and does not relate to any of GAM's investment funds, nor to any of its clients.
In the event GAM is unsuccessful in defending its position, GAM would be required in its next consolidated financial statements to recognise the financial liability at fair value and restate any impacted historical comparative amounts. This accounting matter would have no impact on the Group's cash flow position as any liability would only crystallise once matching performance fees are received by the firm.
This article was first published by InvestementEurope, a sister title to International Investment