(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By Quentin Webb
LONDON, July 24 (Reuters Breakingviews) - Man Group (EMG.L) is showing welcome resolve. The UK hedge-fund manager has already suffered as volatile markets dented risk appetite and wrong-footed its flagship AHL trend-following fund. With managed assets falling 10 percent in the first half to $52.7 billion, Man is preparing for more difficulty ahead. Shareholders have fared awfully - the stock has plummeted roughly 75 percent since the start of 2011. They should applaud the new determination. But the outlook remains murky.
Man’s expensively acquired stable of human traders, GLG, has grown in importance as the computer-driven AHL has struggled. To make things worse, much of AHL’s demand stemmed from lucrative products that guaranteed to return all of the investors’ principal. These prove un-economic when interest rates are low, and lose their appeal when investors prize assets they can buy and sell at will. Man now admits it under-estimated how quickly the “guaranteed products” business would wilt.
The company’s plight echoes that of 3i Group (III.L), the private-equity manager. London-listed specialists in different kinds of “alternative” investments, both man and 3i proved exposed when the financial crisis erupted. Shrinking market values sent both hurtling out of the FTSE 100 and angered shareholders. Enter axe-wielding investment bankers to “right-size” the businesses - in 3i’s case Chief Executive Simon Borrows, once of Greenhill, and for Man, new Chief Financial Officer Jonathan Sorrell, a former Goldman Sachs wunderkind.
With Sorrell at his side, Chief Executive Peter Clarke’s new plan foresees saving $100 million a year by cutting staff, dropping products, and trimming expenses, supplemented by tweaks to AHL and organic growth GLG.
Optimists point to Man’s expertise, distribution network and wide range of products, plus rosy forecasts for industry growth. If Man’s funds pass previous “high-water marks”, lucrative performance fees would kick in, boosting earnings.
Still, despite a beating, the stock is not an obvious bargain. Monday’s 69.15 pence close equated to 11.8 times forward earnings, according to Starmine, roughly in line with more staid British money managers.
And there is an extraordinary spread of analyst forecasts too. Sell-side scribblers usually cluster together. Not here: Man’s toughest critics judge the company “un-investable”, its biggest fans are holding out for 200p a share. Man is tackling a legacy cost structure. But management must do more to sell the market on its future.
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- On July 24 Man Group, the London-listed hedge-fund manager, said it planned to make another $100 million of cost cuts in the next 18 months. The group said funds under management fell to $52.7 billion as of June 30, down from $58.4 billion at Dec. 31, 2011.
- Shares in Man stood 3.9 percent higher by 1500 GMT at 71.85 pence a share. Even including the rise on July 24, the stock has lost about 75 percent of its value since the start of last year.
- Man Group interim report: link.reuters.com/fyx59s
- Man Group statement: link.reuters.com/gyx59s
- Reuters: Man Group cuts $100 mln of costs as assets tumble [ID:nL6E8INH6N] - For previous columns by the author, Reuters customers can click on [WEBB/]
(Editing by Chris Hughes and David Evans)
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