Man Group sees quarterly benefits of business strategy

Man Group’s corporate plan, that its computerised and newly acquired discretionary hedge styles would be complementary, worked almost perfectly last quarter to provide it with net $400m of hedge fund gains.

But sharp falls in its suite of traditional products meant a $1.5bn net loss overall for the group.

This, plus sharp net withdrawals of $2.6bn in volatile markets, mean Man held $65bn by the end of September.

This was down about $4bn on the 31 March figure, but still above the $40.5bn registered in September 2010.

Chief executive Peter Clarke cautioned investor appetite generally would be “generally suppressed” for the rest of 2011.

Second quarter sales of $4.5bn were just half those of the first quarter, “reflecting an anticipated deterioration in investor sentiment over the summer.

“As anticipated, investor sentiment continued to weaken across the summer with lower sales in our second quarter and some increase in redemption rates, notably in September. The first half overall saw net inflows, and although the second quarter saw a net outflow it was encouraging to see positive flows in our institutional multi-manager business, as managed account mandates from BVK and USS continued to fund,” he said.

Clarke noted good performance from Man’s $2.5bn Japan AHL product, launched in April, and new products planned for Canada and the US.

He hailed “the benefits of Man’s strategy to build out a range of investment styles to suit differing market conditions [as] strongly evident in this period.

“The extreme volatility of markets in recent months has created challenging performance conditions across asset classes. This has tested investor appetite for risk, but also reinforced the need for diversifying, non-correlated investment returns.”

Man’s flagship model-driven $24.9bn AHL hedge fund made $1.5bn,while GLG’s $16.6bn alternatives funds lost $1.1bn in the second quarter.

“Focused strategies such as emerging markets and Alpha Select and trading strategies such as European Opportunities saw negative performance, while macro and the conservatively positioned European long/short strategy delivered positive performance,” the group said.

Clarke said AHL was up 7.7% over five months to 31 August, including 6.5% in July and August with strong returns in bonds, interest rates and metals. It now sits just 5.5% below its previous peak value.

But July and August were not kind to GLG’s flagship Emerging Markets hedge fund, which fell 13.3%, nor to its European Opportunity fund, which lost 13.5% of its value.

The group said the EM and equities hedge funds suffered much of the group’s recent alternatives withdrawals.

All of the other hedge funds of GLG, and another Man subsidiary Ore Hill, lost less in July and August than the 9.4% decline of global shares. Only one of its alternative Ucits III funds – Emerging Markets – fell further than 9.4%.

In the two months, hedge funds fell 2.2%, according to Hedge Fund Research.

Separately, the protective function of convertible bonds as an entree to equities showed its worth, as GLG’s two long only convertible funds fell only about 5%, while its convertible hedge fund declined 5.4%.

Despite difficult trading conditions, and some nervous investors, Man said it still has a regulatory capital surplus of $1bn, net cash of $700m, and total available liquidity resources of $3.4bn.


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