Oh dear. Man Group – the biggest publicly-traded hedge fund – dropped 25 per cent, 96p to 296p, during early trade in London on Thursday.
It’s all because of a 25 per cent decline in fiscal half-year profit outlined in their interim results. There are some hints in there of the market movements that contributed to the drop:
Redemptions remained low in the period at $6.0 billion, to give net inflows of $4.2 billion. Overall however, our funds under management declined 9% in the period to $67.6 billion, due to markets affecting performance negatively ($5.9 billion) and the impact of a stronger dollar on the translation of those funds under management denominated in other currencies ($2.7 billion). In view of unprecedented market volatility, active risk management operated to reduce investment exposure in many Man Global Strategies (MGS) products, lowering investor risk and also reducing MGS funds under management by $2.6 billion in the period.
The most hard-hit funds appear to be Man Global Strategies — unsurprisingly its higher risk/return fund, which fell 18.6 per cent in the six months and Ore Hill Pemba, which fell 10.9 per cent in the period.
Ironically, Pemba Ore Hill is the offspring of a tie-up with Ore Hill, the US credit specialist Man took a 50 per cent stake in earlier this year. The combo has not paid off just yet — in fact, Man’s been having to acquire interests from the merged fund’s portfolio to satisfy investors:
Due to redemptions received on the Ore Hill International Fund Ltd in August 2008 an automatic suspension of redemptions was triggered on that fund. Since the Ore Hill Fund LP, the onshore US fund, had common investments and objectives, it was decided to recapitalise both funds and this plan received approval by a supermajority, by net asset value, of investors. As part of this plan, the Group is committed to purchase certain assets from the funds (further details are given in Note 16 to the interim financial statements). Ore Hill Pemba performance has been in line with peers, but impacted by market dislocations in the credit market.
And looking at Note 16, it seems that Man has bought $136m worth of interests as part of that commitment, held as investments in fund products on its balance sheet.
On a more positive note Man’s AHL fund is still (barely) up 2.9 per cent this calendar year, and is, according to the company, showing signs of improvement. And lest we forget, being able to post a profit in this type of trading environment, with most hedge funds seeing their assets decline about 10 per cent in the third-quarter, is a credit to Man’s sales team, if not their strategists.
Here’s some of the outlook:
Since 30 September, we have continued to see private investor sales momentum, including a successful launch in Asia raising $800 million of investor money, and are currently marketing a number of products globally and regionally. Private investor redemptions for October and November have increased somewhat, but principally for open-ended rather than guaranteed products. We have seen a reduced run-rate of institutional sales in October, although the pipeline for mandates remains encouraging. Most of our institutional investors have 90 day notice periods and redemptions levels for the quarter to December 2008 are currently broadly unchanged at around 5%.
Performance in October has been strongly positive for AHL, up 12%. RMF and Glenwood have seen slightly negative estimated performance for the month of around 3-4%, but ahead of industry benchmarks. As at the end of October AHL is, on weighted average FUM basis, only 2% away from net asset highs, although all our other managers are significantly below high watermarks. Performance fees in the second half are likely to be earned from any material upward move in AHL, although performance fees from our other managers in the period are very unlikely.
The continued de-gearing of MGS and adverse foreign exchange translation of around $3 billion have combined to reduce estimated funds under management to around $61 billion, as at the beginning of November.
Related links:
Man Group interim results – RNS statement
Man looks for extra credit - FT Alphaville
Hedge funds hit by 10% asset decline – FT