Analysts warm again to Man Group’s big computer, bit by bit

Man Group bought discretionary hedge fund manager GLG Partners last year as analysts raised concerns it relied too much on its AHL computer-driven strategy for profits.

In mid-2009 analysts at Morgan Stanley expressed concern that up to half Man’s profits came from AHL, then holding $20.4bn assets and Europe’s second largest hedge fund. Its value had fallen 13% by mid-July 2009, preventing it earning lucrative performance fees.

How times have changed.

In July’s and August’s horror months global shares plunged 11%, but AHL rose by just as much, according to analysis and estimates by analysts at RBC Capital Markets.

In addition, AHL’s biggest weekly drawdown since July was 2.8% (final week of August), compared to a 12.7% plunge in the first week of August for equities.

Analysts still approve of Man splashing out $1.7bn in cash and shares for the $24bn GLG, diversifying revenue streams as much as trading approaches. Man paid about 7.2% of AuM, a nice discount to Man’s own prevailing trading value back then, of over 9% of assets.

But since the last two months of mercurial markets, analysts have looked again at AHL, now $24bn. They are welcoming its performance and contribution to the world’s largest hedge fund investor.

RBC Capital Markets increased its price target for Man to 290p today, noting in the quarter to June, AHL was “particularly strong, we estimate it increased 1.5%, and a further 9.4% during the second quarter to date.

“For comparison, the MSCI World index decreased 3% during Man’s first quarter, and decreased an additional 10% during Man’s second quarter to date.”

Early month gyrations in the Swiss franc for example hit some model-driven hedge funds this month, but overall they are still up by 2.2%, according to Hedge Fund Research’s Systematic Diversified index, keeping pace more or less with MSCI World.

The whole hedge fund industry as represented by HFR’s investable Global index fell 0.6% in the first week of September.

The trends were similar in August. Model-driven funds made 0.7%, hedge funds overall fell 3.5%, and global shares slumped 11%

In the middle of that month Morten Spenner, chief executive officer of hedge fund investor International Asset Management, said: “Overall, I’d argue that – given the context of market moves – most managers have protected well, which reflects positively on the industry. In addition, some have managed to position themselves so to even profit from the movements.

“We’ve seen significant positive performance month-to-date from several [computer-driven] managers and even an emerging markets equity long/short manager.”

The arguments for putting a computer at the core of operations are regaining strength, as markets are tough for human brains to digest.


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