Funds Hub
Money managers under the microscope
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.
Morning Line-Up: Gartmore trust seeks buy-backs, Nikko snaps up Tyndall
News and views on the asset management industry from Reuters and elsewhere:
Gartmore trust seeks new buy-backs as Roger Guy leaves - Fund Strategy
Man appoints Richard Phillips as head of UK retail - HedgeWeek
Australia’s Suncorp sells funds arm Tyndall to Nikko - Reuters
Private equity funds see value in Mexican home loans - Reuters
Aegon opens inflation fund to retail investors - Fund Strategy
Morning Line-Up: Pacino, Man, SEC
News and views on the asset management industry from Reuters and elsewhere:
Five million reasons to be a hedge fund manager – WSJ Deal Journal
Hopes of client return boost Man Group shares – Reuters
Pacino moves into hedge fund world – Independent
SEC accuses LA hedge fund operators of bilking investors – LA Times
SAC Capital, Biovail finally bury the hatchet – WSJ Deal Journal
Morning Line-Up: AZ’s IPO, recession predictions, Man’s jobs cull
News and views on the asset management industry from Reuters and elsewhere:
AZ Electronics boosts IPO plans- FT
Know your hedgie – Pix from Monaco
Reuters snappers have been grabbing some headshots of hedge fund managers at GAIM this year. Thought we’d showcase a few here:
Latest from GAIM
Our reporters have been scouting round the halls at the GAIM hedge fund conference in Monaco today. Here’s a taste of what we’ve seen so far:
Man Group CEO rules out big deals after GLG buy
Hedge funds to manage $3 trln by 2013-consultant
FACTBOX-The European hedge fund industry
PREVIEW-May losses cloud hedge fund summit in sunny Monaco
And some links from Reuters Insider coverage:
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”.
