Man Group Plc, the world’s biggest publicly traded hedge fund manager, tumbled the most in almost two years after UBS AG analysts cut their rating on the stock, citing a decline in performance at its $16.3 billion AHL fund.
“Man Group remains highly dependent on AHL, which has had a 12 percent pullback from its recent peak, leading to a significant cut to earnings, but also reducing the probability of flows turning,” Arnaud Giblat, a London-based analyst at UBS, wrote in a note to clients today. He cut his rating on the stock to neutral from buy.
The shares closed at 97.05 pence in London, down 16.7 percent on the day, the biggest drop since September 2011. Still, the stock is up 17 percent this year, valuing the company at 1.8 billion pounds ($2.8 Billion).
AHL, Man Group’s largest hedge fund, fell about 8.7 percent in May as the biggest one-day plunge in Japanese stocks since the 2011 earthquake and uncertainty over how long the U.S. Federal Reserve will maintain its record stimulus roiled financial markets. Man Group had previously rallied after AHL made money for six straight months through April and investors anticipated that the ouster of Chief Executive Officer Peter Clarke might trigger cost cuts and a strategy overhaul.
Man Group has a “strong distribution” in Japan, which accounted for about 15 percent of assets under management at the end of 2012, Giblat wrote. Market turmoil in the world’s third-biggest economy could hurt Man Group’s ability to sell investment products, as “risk appetite may have been negatively impacted by the recent bout of volatility,” he said.
Giblat said that a 1 percent drop in AHL’s investment performance reduces earnings by 6 percent.
AHL, which relies on computer algorithms to follow profitable trends in the prices of stocks, bonds, currencies and oil, accounts for more than a quarter of London-based Man Group’s $54.8 billion of assets under management. May was the fund’s worst month since October 2002, cutting gains for all of 2013 to 0.9 percent, according to data compiled by Bloomberg.
Hedge funds tied to AHL are now 13 percent below their high-water marks on average, Peter Lenardos, an analyst at RBC Capital Markets in London, wrote in a note to clients yesterday. The high-water mark is the level at which fund managers can charge investors lucrative performance fees.
Man Group paid $1.6 billion in 2010 for London-based hedge fund and investment firm GLG Partners Inc. to make the company less reliant on AHL. Emmanuel Roman, 49, who replaced Clarke as CEO in February, joined the firm as part of the GLG purchase.
Clients pulled a net $3.7 billion from Man Group’s investment funds in the first quarter, the seventh consecutive quarterly outflow. Assets under management have slid 23 percent from $71 billion at the end of June 2011. Clients started pulling money in the third quarter of 2011 to reduce market risk amid the European sovereign debt crisis and as Man Group hedge funds posted losses.
David Waller, a spokesman for Man Group, declined to comment on the UBS ratings cut and AHL’s performance.
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