Man Group buys Lehman claims from GLG funds

Man Group is to pay $355m to buy the legal claims that products managed by its institutional asset management subsidiary GLG Partners have to the estate of Lehman Brothers, as a result of counterparty exposure the funds had to the now-defunct bank.

The acquisition allows Man, and pension funds investing in those GLG products affected, to move on from the crisis. Lehman’s swift demise caught out GLG Partners – before Man bought it – along with many of its prominent hedge fund rivals.

Augustus Asset Managers, now part of Switzerland’s GAM group, RAB Capital and Ramius were among other funds affected at the time.

Investors in many portfolios had little choice but to wait and see what recompense might eventuate from bankruptcy proceedings, as many managers affected swiftly gated money in.

While Man’s latest move shows the full extent of how badly hit each affected GLG fund was by their exposure to Lehman Brothers, it is also one of a growing number of signs of managers spying potential to profit from the various claims arising from the credit crunch.

Claims to the bankrupt estate of Bernard Madoff, whose Ponzi scheme was uncovered at the height of the crunch, have traded at up to 60% of their nominal value since Madoff was arrested in December 2008, according to Neil Campbell, head of alternative investments at inter-dealer brokers Tullett Prebon.

Campbell said the progress of bankruptcy proceedings, and high profile and vigorous efforts of trustees seeking to recover monies entrapped, gave new reason to expect those holding claims, or buying them cheaply, could make some money over time.

Man will pay current net asset value for the entire residual exposure to the Lehman estates from some GLG funds.

The listed hedge fund manager said the claims relate mainly to GLG’s European Long Short and North American Opportunity strategies. For the claims of North American Opportunities alone, Man will pay $88.16m.

But Irish Stock Exchange announcements show many more GLG funds will also have their claims bought up, via upfront cash payments, as well.

For claims owned by the GLG European Opportunity fund, Man will pay $12.51m; for those of GLG Esprit fund, Man will pay $249,272; for claims of GLG Alpha Select, $13.94m; for GLG Financials, $6.5m; for GLG Global Convertible fund, $2.5m; for GLG Technology fund, $14.16m; for GLG Market Neutral fund, $8.14m; for GLG Credit, $10.86m; for GLG Global Utilities, $5.46m; for GLG Consumer fund, $1.8m; and for the Global Mining fund, $2.27m.

Other funds affected include GLG North American Equity – for which the payment will be $144,091 – GLG UK Select Equity ($35,944), GLG Global Sustainability Equity ($42,578), GLG European Equity ($1.17m), GLG Capital Appreciation ($309,888), GLG Balanced ($29,126) and GLG Performance ($2.2m).

In return for buying their entitlements, Man could benefit from – or bear the risk of – any change to the NAV of the claims. In a limited number of cases, the affected funds may also share in any upside in NAV.

Man noted the precise timing of receipts from the Lehman estate is difficult to determine, given the complexity of the insolvencies.

The payment for the claims will be a minor hit to Man’s reserves, which stand at around $900m of net cash, a regulatory capital surplus of similar size, and total available liquidity resources of around $4.8bn.

Peter Clarke, Man’s chief executive, said: “These transactions will remove the remaining uncertainty from funds with residual claims against the Lehman estates, to the benefit of both existing and new investors. In this way, Man can use its resources productively to provide clarity for fund investors and the opportunity to grow assets in the affected funds more quickly.”

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