Gartmore Investigation Highlights Potential for Abuse


New York, NY – Recently, an article published in Wall Street and Technology magazine, revealed that a hedge fund manager at UK-based Gartmore has recently been placed on suspension pending an investigation on whether he might have breached firm policies on directing trades.  This story spotlights the potential for abuse that can arise as asset managers and buy-side traders choose who to trade with.

The Gartmore Story

Gartmore said that fund manager Guillaume Rambourg was suspended pending the outcome of an internal investigation into whether he had been “directing trades”.  The concern is that Rambourg was directing traders to use certain favored brokers to execute securities transactions.

Rambourg joined Gartmore in 1995 and focused on European equities.  He co-managed the firm’s $2.3 billion Alphagen Capella fund with Gartmore’s most high profile fund manager Roger Guy since the fund was started in 2000.  Guy and Rambourg managed 8.1 billion pounds ($12.2 billion), 37 percent of Gartmore’s assets and accounted for 40 percent of the firm’s revenue, according to company filings.

Gartmore has not provided a timeframe to complete the internal investigation, and no other Gartmore fund managers are under review.  Gartmore has also put out a statement that based on the information they currently have, no clients have suffered losses as a result of the alleged breaches.

The Gartmore investigation is not related to the FSA’s recent arrest of several suspects on alleged insider trading.

Legitimate Concerns or Sour Grapes?

While the facts on the Gartmore story have yet to be made public, many London-based brokers have argued that this incident highlights the fact that the way asset managers decide who to trade with is extremely subjective, open to conflicts of interest, and potential abuse.

In recent years, buy-side traders are responsible for choosing which brokers to trade with based on those firms’ ability to provide “best execution” – a rather ill defined concept.  Of course, the decision on who to trade with is often muddied by the fact that some brokers provide buy-side clients with a large number of services in addition to the ability to trade stocks and bonds – including investment research, meetings with company managements, and access to IPOs. 

These conflicting pressures is one reason that a few years ago the FSA moved to promote “unbundling” commissions so asset managers could more easily make their decision on who to execute their trades with separately from the decision of who (and how much) they wanted to pay for research.

As a result of these changes, most asset managers have implemented “broker vote” systems in recent years where traders, analysts and portfolio managers vote to allocate a fund’s “research commissions” to the brokers whose service is considered the most valuable. 

Subjectivity and Huge Rewards Encourage Abuse

Unfortunately, broker vote systems are not used by asset managers to determine which brokers to trade with.  As mentioned previously, this decision is typically left up to the subjective discretion of the buy-side traders who are supposed to pick the broker(s) who provide “best execution” for the type and size of trade they want to conduct.    

It must also be mentioned that the amount of money at stake for the brokers is enormous.  According to Greenwich Associates, US institutional investors generated approximately $13.7 billion in equity commissions in 2009 that was paid to execute trades via electronic trading systems, agency brokerage firms, or traditional full-service brokers.

Given these factors, it is no wonder some brokers have wondered aloud whether their competitors are getting execution business as a repayment for lavish trips, gifts to a fund manager’s favorite charity, or even overt kickbacks.


Consequently, we suspect that many in the financial services industry will pay close attention to the Gartmore story as it unfolds as it could potentially shed more light on the rather subjective and big stakes decisions made by buy-side traders and portfolio managers regarding who they want to execute their trades with.  For more details on the original Wall Street and Technology article, please click on the following URL


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