Man Group diversifies further by buying remainder of Ore Hill
Man Group is to take full ownership of rival manager Ore Hill, demonstrating a continuing interest in holding equity of hedge funds despite offloading its stake in Bluecrest Capital Management last week.
Peter Clarke, Man’s chief executive, explained Man had sold its 25.5% interest in BlueCrest, for $633m, to “focus our resources on in-house capabilities”.
After buying the remaining 50% of Ore Hill it does not already own, Man will bring Ore Hill’s operations into discretionary management unit GLG Partners.
This expands the diversification program Man initiated by purchasing GLG Partners last year, away from heavy reliance on its flagship AHL portfolio for profits. Analysts, however, recently voiced a continuing concern with Man’s dependence on AHL.
Man moved in 2008 to buy about half the equity in Ore Hill, a credit-focused event-driven hedge fund and structured product manager with about $1.9bn total assets.
Raffaele Costa, Man’s head of sales for North America and Europe, said acquiring the rest “solidifies our position as a leading credit manager, in addition to our already strong equity strategies. Ore Hill is a well established manager, with a strong track record over nine years, and they will spearhead our expansion into US credit.”
The transaction is slated to close next quarter.
Ben Nickoll and Fritz Wahl, Ore Hill’s co-founders, will be subject to share lock-up agreements and, along with Alok Makhija, will continue to manage Ore Hill’s portfolios.
Event-driven credit strategies have generally proved popular among investors since severe dislocations in the market during the crisis.
Some $14bn flowed into event-driven funds overall last year, easily outpacing the $2.6bn inflows into the much larger equity sector. Schroders recently announced the Opus Credit fund run by its New Finance Capital unit shut to new subscriptions.
Man’s announcement about Ore Hill came the same day Man announced a modest rise in funds under management this quarter, from $68.6bn to $69bn.
Net performance of its funds was flat – gains at GLG offset by AHL’s fall – while $5.3bn of sales marginally outpaced $4.6bn of redemptions.
Chief executive Peter Clarke said this month brought “an extraordinary concentration of macro shocks, chief among these the Japanese earthquake”.
Subsequent sharp reversals in equity, commodity and FX markets hit AHL, Clarke said, and it fell an estimated 6.4% by 31 March. It is now about 10% below where it can re-commence collecting lucrative performance fees.
Morgan Stanley’s European banks and financials analysts team estimated in a broker note last week AHL is responsible for “over 60%” of Man’s earnings, before describing AHL’s performance this year as “lackluster”.
In recommending an “equal weight” position in Man Group shares, the team wrote Man’s share price “remains highly correlated to performance of the key AHL fund…we believe investors will likely continue to see some discount due to the concentration risks”.