March 1, 2017 / 9:37 AM / a year ago

Man Group driven to loss by fee income fall, writedowns

LONDON (Reuters) - Weak performances in some of its funds and writedowns linked to earlier acquisitions dragged Man Group to a full-year loss, knocking the British hedge fund firm’s shares and leading some analysts to question its decisions.

Chief Executive Luke Ellis said on Wednesday Man Group had “found it difficult to generate performance for clients and performance fees” due to a “very unforgiving” market over the first three quarters, leading to “disappointing profits”.

Man Group said in a statement its adjusted management fee profit before tax fell 8 percent on the back of lower management fee revenue, particularly for its stock-picking GLG business.

Hedge funds struggled to outperform in 2016 amid a volatile market backdrop and as stock markets rose, with some funds closing and others having to cut fees to placate investors.

Weak performances at GLG and Man Group’s fund-of-fund unit FRM over the last few years resulted in writedowns of $379 million, and its shares fell by nearly six percent.

Seven out of 19 GLG funds lost money in 2016, while FRM ended the year down 3.8 percent.

“It is a salutary lesson on the difficulty of adding material value through M&A,” said Shore Capital analyst Paul McGinnis in a note to clients.

Given Man Group has driven growth in recent years by acquiring firms, most recently U.S. real asset manager Aalto, the writedowns “do not inspire much confidence” added KBW analyst Jonathan Richards in a note.

Man Group posted a loss before tax for the year of $272 million, while adjusted profit before tax fell to $205 million from $400 million in 2015. The firm recommended a final dividend of 4.5 cents a share, for a total for the year of 9 cents.

Despite the fall in profit, Man Group said it still managed to take in an extra $1.9 billion in net new client money and got a $3.2 billion lift from positive market moves, more than offsetting currency losses and helping total assets rise 3 percent to $80.9 billion.

Editing by Simon Jessop and Alexander Smith

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