Funds Hub

Man and AHL

Rightly or wrongly, the short-term performance of Man Group’s largest fund, AHL, has been closely watched by Man investors as an indicator of the firm’s fortunes.

However, according to a Numis note this week, the fact that AHL is so close to its high-water mark (the point above which a fund can earn performance fees) at the moment gives it extra weight.

“…In the short term AHL will continue to be the principal driver of the P&L in our view,” write analysts David McCann and James Hamilton. “…We believe it still accounts for a disproportionately large (>50 pct) part of the P&L.

“Moreover, given that AHL is now close to HWM (we estimate 1 pct away), the performance fee dynamic means the P&L for the next 12-18 months will look a bit like an at-the-money call option just before expiry — i.e. a small movement in the underlying will have a disproportionately large impact on the performance fee line.

“Assuming an initial FuM of $25 bln, all of which assumed at HWM, a 20 pct performance fee and 20 pct staff share, we estimate each 1 pct movement in AHL is equivalent to $40 mln PBT.”

Man and Lion

Man Group shares were down this morning after last night’s news that AHL dropped 1.76 pct last week, taking losses since Nov 1 to nearly 4 percent. Broker Oriel estimates this leaves AHL 8 percent off its high-water mark.

“November’s performance will disappoint those who expected AHL to string together a good run of investment returns. The company have blamed central bank interventions since the credit crisis for AHL’s poor returns,” Oriel said.

Much has been said this year about AHL: initially speculation that the model might be broken, and then a burst of strong performance in recent months that has seemingly swept the doubts aside. This month’s losses are hardly large but anything that takes AHL away from its high-water mark, where it earns fees, won’t be welcomed.

Meanwhile, positive noises from Liontrust in its H1 results today, with more inflows adding weight to the company’s suggestion in September that its business had stabilized.

Ironically, the shares are down today, perhaps the result of an Altium note suggesting the return to profitability will be delayed by a year.

Interesting disclousure too on former CEO Nigel Legge, whose departure was announced in May. Including severance payments and consultancy fees to Legge (plus legal expenses, social security costs and VAT…) Legge’s departure cost Liontrust a cool 665,000 pounds — roughly the same as the firm’s H1 adjusted pretax profit in 2009.

Results revive Man

Some good news for Man Group this morning as its shares soared 6.5 percent on this morning’s full-year results.

Asset levels were actually down since the end of March (from $39.4 bln to $39 bln), but such have been the outflows from Man’s funds that these figures imply a stabilisation of assets and, according to Credit Suisse, zero net outflows.

Man still isn’t fully benefiting from the renewed investor appetite for absolute return funds that much of the wider hedge fund industry is seeing, but investors are taking heart from today’s update.

If institutional investors follow the lead of private investors, who have been net investors into Man’s funds over the past year, then flows could quickly turn positive.

Investors were also eyeing a recent upturn for AHL, which lagged its rivals last year. While “uncorrelated returns” sound good during market falls, (as we’ve had recently), it’s less attractive in situations such as 2009 when the stock market is soaring and a fund is losing money. However, AHL is up 3.5 percent so far this year — performance that has been boosted, claims CEO Peter Clarke, by Man’s decision to double its research team over the past two years.

Man’s shares had underperformed the market by 30 percent so far this year before today. Today’s jumps shows that ‘less bad news’ is often enough to rejuvenate a battered share price.

Long-haired Lagrange brings star culture to Man

In our investor profile of GLG’s Pierre Lagrange, we highlight two very different sides of London’s hedge fund industry and a potential culture clash in Man Group’s surprise takeover of GLG this month.

In many ways, Lagrange symbolises the informal, star manager culture that GLG has based its growth on (although also suffered from after Greg Coffey’s departure and Philippe Jabre’s FSA fine).

Being neighbours with Lakshmi Mittal, and a backer of both comic book action film Kick Ass and a modern art gallery, the long-haired Belgian may find being part of Man Group something of a culture shock.

Man is dominated by its black box AHL fund and has always avoided the star manager culture in its multi-manager unit.

CEO Peter Clarke is a smartly-dressed ex-finance director, not a fund manager.

But with AHL still struggling, even as the hedge fund industry as a whole recovers, Man may have felt it needed more strings to its bow.

GLG, for its part, saw big outflows in the credit crisis and Man offers it access to an enormous global sales force. As Lagrange told me, “bigger is better for us”.

Morning line-up

Hedge fund stories from the past 24 hours from Reuters and elsewhere:

Will ETFs replace hedge funds?…. No – Seeking Alpha

Hintze the Prince’s philanthropist – Bloomberg

Hedgies to top stocks, bonds in 2010 – Reuters

Calpers probes hedge fund advisors – LA Times

Managed futures on the rack – Reuters

Man Group still waiting for the wave

Shares in Man Group, the world’s biggest listed hedge fund firm, are up strongly today after it finally reported a rise in assets.

Like many hedge fund firms, Man has suffered during the industry’s downturn, with assets falling from $70.3 bln a year ago to $43.8 bln currently.

However, the current figure marks a small gain, helped by currency movements and, importantly, a slowdown in outflows.

The outlook could be bright – institutional outflows for the third quarter look set to be low. And in July CEO Peter Clarke predicted the group would return to overall net inflows in the six months to March 2010.

However, difficulties remain.

Net sales to private investors, important to Man because margins tend to be higher, slowed in Q2 from Q1.

UBS analyst Carolyn Dorrett attributes this to the poor performance we’ve seen from AHL, Man’s flagship strategy and accounting for nearly half its assets.

Man finds a friend

There has been plenty of bad news surrounding Man Group in recent months.

Assets at end-June were $43.3 bln, compared with $79.5 bln a year before. Flagship managed futures strategy AHL, which not so long ago was boasting some superb-looking performance figures in spite of the credit crisis, is down 5.1 percent over the past year after a poor first half of 2009.

And Man Group’s shares have underperformed the market by 44 percent over the past year, though they have outperformed during 2009.

However, according to Neptune fund manager Jeremy Smith, who has recently bought shares in Man Group, equity investors are being too downbeat about the industry’s prospects.

“A lot of fund managers have written off the hedge fund industry, but from anecdotal evidence it seems a lot of money is being raised. Valuations (in the sector) are extremely low.”

This certainly fits in with the slightly brighter picture of the industry that we are beginning to see emerge.

Data from HFR shows Q2 net redemptions slowing and some commentators have suggested the industry may now actually be seeing net inflows again. If so, then Man Group’s recent outperformance of the market could yet continue.

What a difference a year makes

Last year’s record poor year for the hedge fund industry was a boom period for managed futures.

Months of falling equity prices, plus a first half of rising oil prices followed by a second half of falling oil prices provided some great trends for these computer-driven funds to follow.

But 2009 is an altogether different prospect.

Latest data from HFR shows hedge funds in general made a gain of 0.13 percent in June, taking first half performance to 9.41 percent.

In contrast, managed futures are struggling. Credit Suisse/Tremont shows them down 5.23 percent in the first five months of the year.

And Man Group, whose trading statement is out today, has been hit by flagship strategy AHL which, although long term performance is excellent, is down around 15 percent year-to-date.

Man are not alone. Winton Capital’s Futures Fund, which made 20.99 percent last year, is down an estimated 7 percent in the first half.

Strong Man no more

A year ago in its final results Man Group – the world’s biggest listed hedge fund firm — was able to report assets under management of $78.5 billion and a 60 percent rise in profits.

How times have changed.

The firm’s shares took a pounding this morning, although have since made up some ground, after the firm revealed assets are now down to $44 billion, while profits almost halved.

Like much of the hedge fund industry, the firm has suffered from poor performance and client redemptions.

And like many managed futures strategies, AHL’s fortunes have turned. The flagship strategy is down 2.2 percent in the year to May 19, although performance can be volatile.

(The turnaround in managed futures funds in general has been even more dramatic — after topping the charts in 2008, according to Credit Suisse/Tremont, they are now the second worst-performing strategy year-to-date.)

But Man’s problems don’t end there. Madoff-exposed RMF Four Seasons is down 15.6 percent in the year to March, while Glenwood lost 16.7 percent and multi-strategy Man-IP 2202 8.3 percent.