Nov. 5 (Bloomberg) -- Man Group Plc, the biggest publicly traded hedge-fund manager, reported first-half pretax profit that surpassed its forecast after performance and management fees rose more than it expected.

Pretax profit dropped to $302 million in the six months through September, 8 percent more than the company forecast at the end of that month, Man Group said in a statement today. Assets under management were unchanged at $44 billion at the end of October even after institutional investors withdrew $700 million in the month, Chief Executive Officer Peter Clarke said.

“We’ve made that back up,” Clarke said in a telephone interview from London. “We’re not seeing evidence of redemptions picking back up, they’re back to historical levels,” he said. “We expect our assets to grow.”

Investors pulled less money from Man Group’s funds in the third quarter after markets rebounded from their March lows. Hedge funds got $1.1 billion of net investments in the three months through September, the $1.43 trillion industry’s first gains in a year, according to Hedge Fund Research Inc. Man Group’s investors pulled $5.3 billion in the first half.

The results “are likely the trough” for earnings, Michael Sanderson, an analyst at Evolution Securities in London, wrote in a note to investors. “Having surpassed its own pre-close guidance, short-term sentiment is likely to be good.”

Shares Rise

Man Group fell 0.2 pence to 324.8 pence in London trading, valuing the company at about 5.6 billion pounds ($9.2 billion). The stock has climbed 37 percent in 2009.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profit from speculation on whether the price of assets will rise or fall.

Man Group’s management and performance fees beat the company’s own forecasts because some funds that fix annual fees at the end of September performed better than expected, Clarke said. Management fees totaled $245 million, $5 million more than Man Group’s September forecast, while performance fees were $47 million, beating the firm’s estimate by 57 percent.

Net income fell to $248 million from $507 million in the year earlier period. Man Group reported pretax profit of $622 million in the same period a year ago.

AHL ‘Modest’ Fees

Credit Suisse Group analyst Rupak Ghose said he was “increasingly concerned” about the recent performance of Man AHL Diversified Futures Ltd., a computer program that drives about $20 billion, almost half of Man Group’s funds.

AHL, which identifies trades in more than 150 futures markets around the world, dropped 11 percent this year through the end of September after rising 25 percent in 2008, according to data compiled by Bloomberg. The fund gained for four straight weeks in October, its longest winning streak this year, before slipping 5.7 percent in the two weeks through Nov. 2, according to U.K. regulatory filings.

AHL is still below the point at which Man Group can collect performance fees from fund, its so-called high-water mark. The fund, which was 11.6 percent below that point during the period, fell further in October.

“Given this, we have modest performance fee expectations for the second half,” Man Group Finance Director Kevin Hayes told analysts today.

Man Group is trying to lessen its reliance on AHL by developing other products such as managed accounts, which provide investors with an alternative to funds-of-hedge-funds or direct investments in hedge funds. The accounts allow investors to remove money whenever they wish, rather than when the fund manager allows them, avoiding so-called gating risk.

The value of Man Group’s managed accounts rose by 50 percent to $6 billion in the period. The program includes about 64 hedge funds today, and that number can expand “easily,” Clarke said.

“It’s clearly resonating with investors,” Clarke said in a conference call with investors and analysts. “It removes some of the gating risks that investors have been particularly concerned about for obvious reasons.”

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Last Updated: November 5, 2009 12:18 EST