(Bloomberg) -- GAM Holding AG, the Swiss asset manager reorganizing under Chief Executive Officer Alex Friedman, said profitability will fall significantly this year as market volatility continues to baffle its fund managers.

Performance fees in the second half are expected to be similar to the 1.2 million Swiss francs ($1.2 million) earned in the first six months of the year, Zurich-based GAM said in a statement on Thursday. The shares were little changed as the company reported a rise in assets under management and outflows slowed in a key bond strategy.

"The market environment continues to be challenging," with clients showing aversion to riskier investments, Friedman said in the statement. "While we remain focused on delivering investment performance, market swings detached from fundamentals have made it difficult for some discretionary fund managers, who rely on fundamental analysis, to outperform."

GAM pared early gains and was down 0.6% in Zurich trading at 9.07 francs as of 9:30 a.m. The shares have fallen by 44% this year through Wednesday. That compares with a 12% drop for the BI Global Large Investment Management Competitive Peer Group, an equal-weighted basket of peers.


"Assets under management are slightly higher than expected, but GAM still needs acquisitions to keep assets at a stable level," Michael Kunz, an analyst at Zuercher Kantonalbank in Zurich, said by e-mail.

Andreas Venditti, an analyst at Vontobel Holding AG, said outflows at GAM's important absolute return bond strategy had "slowed markedly."

Since Friedman joined the company in 2014, GAM has acquired other asset managers, cut operating costs and terminated some investment strategies. Active asset managers such as GAM face higher regulatory costs and competition from low-cost ETFs that passively track markets.

GAM reported a net outflow of 1.8 billion francs in its investment-management unit after clients withdrew money from its absolute return, equity and multi-asset investment funds. The private labeling business attracted net client money inflows of 2.5 billion francs, the company said in the statement.

Total assets under management rose 5% to 119.1 billion francs in the third quarter after the positive inflow and the inclusion of assets from the acquisition of Taube Hodson Stonex Partners, a deal the company announced in May.

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