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LONDON Thu Jul 9, 2009 12:32pm BST

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LONDON (Reuters) - Hedge fund manager Man Group (EMG.L) reported a rise in sales to private investors in its first quarter, raising hopes of a recovery of fund flows into the sector and boosting its shares.

In a statement on Thursday, Man Group said it attracted net inflows of $1.9 billion (1.2 billion pounds) from private investors into its funds, which aim to deliver positive investment returns whether markets rise or fall, helping offset net outflows of $3.3 billion from institutions such as pension funds.

"This is a significant positive for the company, especially as gross asset gathering has remained strong even during the worst quarters of the credit crunch," analysts at Bank of America/Merrill Lynch said in a research note.

"Man (stock) is far too cheap for a company where (there) is clear evidence that it retains the ability to generate profitable organic growth," the note said.

Shares in the world's largest listed hedge fund firm, which fell on Wednesday to their lowest in more than a month, were up 2 percent at 244 pence by 10:11 a.m., outpacing gains in the FTSE 100 .FTSE and having touched 250p earlier in the session.

Private investors have generally been quicker than institutions to pull their money from the $1.3 trillion hedge fund industry, and slower to return.

TOUGH OUTLOOK

At last month's GAIM hedge fund conference in Monaco speakers said the immediate outlook for flows was tough, although institutional investors could re-enter this year.

Over the past year, Man Group's assets have fallen sharply due to poor performance and through outflows. Man said its funds under management had dipped to $43.3 billion at the end of its first quarter on June 30, down from $44 billion at the end of May, as currency gains failed to match the outflows.

Man said early redemption figures for the second quarter marked "a significant reduction in the quarterly rate," saying it had paid out a gross $1.8 billion in institutional outflows so far.

Most outflows are booked and paid at the beginning of the quarter, it said, implying any further inflows will reduce the net outflows figure to below $1.8 billion.

Gross redemptions from private investors were "considerably lower" than in the previous two quarters, it said.

The asset total was helped by currency movements but suffered a $1.5 billion blow after Man cut leverage levels in some private investor products following poor performance in its flagship AHL offering, which was down 11.2 percent in the first five months.

In May Man Group Chief Executive Peter Clarke said he expected redemption requests from institutional investors to "shift significantly downwards from here." In the year to March the company saw net outflows of $2.1 billion.

(Editing by Douwe Miedema and David Holmes)

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