The Zurich-based group on Thursday said it had suspended all subscriptions and redemptions in its unconstrained/absolute return bond funds (ARBF) after an investor exodus.

It is now considering liquidating the funds in question, which represented 7.3 billion Swiss francs (£5.61 billion) in assets under management at the end of July.

"The fund boards are considering all future steps, including fund liquidations, to maximise value and liquidity for clients," it said.

Swiss financial market supervisor FINMA said it had been informed about the trade halt as well as an employee suspension at the company.

"We can confirm that we're in close contact with the group on this matter," FINMA said.

GAM said on Tuesday it had suspended investment director Tim Haywood following an internal investigation that raised questions about his risk management procedures and record keeping.

Although the ARBF funds were liquid enough to serve redemption requests, such actions "could compromise the interests of remaining investors", it added.

No other part of GAM's 163.8 billion Swiss franc business was affected and its other investment teams and third-party managers continued to manage client funds as normal.

GAM's shares fell 13 percent by 1450 GMT, extending a 13 percent drop on Tuesday. The Swiss market was closed for a holiday on Wednesday.

"In our view GAM is getting out of the frying pan and into the fire with this announcement," Zuercher Kantonalbank analysts wrote. "No one wants to be the last man standing in a shrinking fund."

"We are ...looking at establishing alternative structures for clients who want to remain invested with the ARBF team," Chief Executive Alexander Friedman said.

While recent events had been a setback for the company, "we have absolute confidence in the strength of GAM as a diversified asset manager", Chairman Hugh Scott-Barrett said.

(Reporting by Michael Shields, Angelika Gruber and Brenna Hughes Neghaiwi; editing by John Stonestreet)

By Michael Shields, Angelika Gruber and Brenna Hughes Neghaiwi