Man alive! | FT Alphaville

Man alive!

The price action in the eponymous hedge fund manager.

That follows a shocking second quarter trading update that rightly or wrongly is bound to raise questions about the acquisition of GLG. But before we come to that, the lowlights from Wednesday’s update:

– Assets under management ($65bn) were well below forecasts ($70bn-$71bn).

– That was down to outflows (-$2.6bn), a weak investment performance (-$1.5bn) and FX translation effects ($1.9bn).

– Clients pulled a net $1.5bn from GLG alternatives and a further $1bn from GLG long only funds, which suffered negative investment performances of $1.1bn and $1.9bn respectively.

– There was a marked slowdown of funds into the black box AHL funds even though they performed well.

– Redemptions increased from $5.3bn in the first quarter to $7.1bn in the second.

– And there was a warning that investor appetite will be generally suppressed for the remainder of the year.

All in all a pretty grim statement which has resulted in big downgrades from analysts.

Here’s Credit Suisse:

A combination of lower assets under management, performance fees, and change of CS analyst/modeling assumptions has led to our FY11 FuM forecast being lowered by 17% to $67bn and FY12 FuM lowered by 16% to $78bn. Our PBT forecasts for the 9mths to 31 Dec 11 has been reduced by 27% to $332m (inc $19m one-off interest cost) and FY12 by 22% to $751m.


Merrill Lynch reckons most of the damage was  done during September as nervous investors demand their cash back from GLG, which apparently has generous liquidity terms.

The largest single divergence came in open ended GLG, which saw gross outflows of $3bn, on a starting book of $15.3bn. Sales were actually quite decent, but the net result, an outflow of $1.5bn, was materially below our expectation of -$0.15bn. We have not seen any broader data to suggest this level of redemptions from hedge funds, but nor have we seen any industry data for the last couple of weeks of September, where we suspect the bulk of the damage occurred

Judging by Bloomberg data on GLG’s UCITS funds, performance has ranged from being in line with the industry to being strong, so we have to believe this reflects an institutional dash for cash at the end of September. Our numbers were struck in mid September, when possibly sentiment was not as negative, but we are still very surprised at the magnitude of this effect. It will be interesting to see GlobeOp’s forward redemption indicator covering this period when this appears. GLG may have been somewhat undone by the generous liquidity terms it typically offers investors

Put in that light, perhaps the GLG redemptions are part of a wider industry trend  — a massive dash for cash and safety in volatile markets — and investors should not worry unduly about the division’s performance or Man’s strategy in buying it. That said, the $1.6bn acquisition was supposed to diversify Man’s business away from the computer driven AHL fund something it manifestly has failed to do.

And investors should, however, be worried about the dividend. Man has guided to a $0.22 cent annualized dividend for 2011, which means the stock is yielding an attractive 7.5 per cent. But coverage looks thin, notes Arbuthnot Securities.

Prior to today’s announcement, coverage would be approximately 1.1x, and earnings estimates are likely to fall …and the board has committed to a ‘minimum’ dividend.

And as we’ve see , estimates are certainly falling — along with the Man Group share price.

Update: 3.44pm (London time)
We reckon some of the redemptions from the long only GLG funds had little to do with market volatility or a dash for cash. Rather it was clients pulling money following the departure of key fund managers. Recall, this part of the business is the old UK fund management arm of SocGen, which GLG acquired in December 2008.

Related link:
Man shares tumble as assets shrink – FT