Management change may be no long-term fix for Man Group

LONDON Mon Apr 30, 2012 5:24pm BST

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LONDON (Reuters) - A mooted change of chief executive at Man Group (EMG.L) will do nothing to revamp its flagship fund and reverse the client withdrawals expected to be in focus again this week.

Peter Clarke, who took over as CEO from industry 'godfather' Stanley Fink in 2007, has been under growing pressure after a near 60 percent fall in the share price since September on the back of client withdrawals and poor returns from its main 'black box' fund.

In November, Reuters reported one top 15 shareholder saying the fund manager was "ripe for a management reshuffle".

Last Friday, the Financial Times reported that top 10 institutional investors had given Clarke a "window" in which to lift the share price.

While analysts agree a change of CEO could boost Man's battered share price temporarily, they question how a new CEO could address the two main issues - the poorly performing quant fund AHL, and GLG, a landmark acquisition widely viewed as expensive.

"I do not think changing the CEO can make too much of a difference other than providing a scalp, and is that what people want? It would be a shame," said Sarah Ing, analyst at Singer Capital Markets.

"As a management team they have done a lot to provide as much clarity as they can on the issues under their immediate control."

Man, which will report first-quarter flows on Tuesday, has seen net client outflows in every quarter over the past three years, apart from the first two quarters of 2011r. In March, Clarke said there had been a "significant" fall in net outflows this year, particularly in February.

BLACK BOX

Man's difficulties stem largely from the poor performance of AHL, its $21 billion computer-driven fund named after 1980s founders Michael Adam, David Harding and Martin Lueck. Last year around 70 percent of group revenue was generated by AHL funds or funds that allocate to AHL.

The fund fell 6.4 percent last year as its programmes focusing on short-term market movements were hit by market volatility. So far this year, it has lost 2.2 percent.

Like rivals, AHL relies on algorithms developed by teams of PhDs analysing data patterns - beyond the understanding or mandate of most CEOs.

"A CEO should not really be involved with ... investment decision-making," said David McCann, analyst at Numis who rates the stock a 'hold'. "AHL has a defined process and if a management team were to change then ... as an existing investor I would be fairly uncomfortable."

AHL has been overtaken in size, and - in the mind of many investors - as one of the sector's leaders by $29 billion fund firm Winton Capital, founded by Harding in 1997.

Winton's main fund gained 6.3 percent last year and saw massive inflows, sucking in an estimated $1 in every $8 of assets that investors ploughed into hedge funds worldwide last year. That helped Harding almost double his wealth to 800 million pounds last year, according to the Sunday Times.

In contrast, Clarke has missed out on around $23 million of incentive payments because he failed to hit targets and as the share price fell.

LIMITED OPTIONS

Man has also come in for criticism for its purchase of fund firm GLG in 2010, particularly for the $1.6 billion it paid.

Its disposal last year of a 25.5 percent stake in BlueCrest - which has continued to grow its assets since the deal - has also been questioned.

However, analysts view these deals as unlikely to be reversed while it could be argued that GLG has been doing what it was bought to do - perform when AHL struggles - although it is less profitable for Man shareholders than AHL.

GLG's European Equity Alternative Ucits fund is up 8.6 percent this year, while Global Convertible Ucits has risen 7.8 percent and Atlas Macro Alternative Ucits is up 2.8 percent.

"(GLG) was maybe a poor strategic decision," said Numis's McCann. "(And) Clarke can come across as being quite out of touch with the investor community.

"But the options are limited," he said. "The market does not have the appetite for acquisitions... (And) the nub of the problem is that AHL needs momentum and there has not been momentum in markets."

Man's response to its problems has been to give shareholders more detail on future dividends, which will consist of management fees and be supplemented with surplus capital.

It has also been launching new funds and making new hires.

Last month the group announced plans for a computer-driven bond hedge fund, and in March announced the launch of the Man Commodities fund. Last month it also hired a co-head of foreign exchange for AHL.

(Reporting by Laurence Fletcher; Editing by Dan Lalor)

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