Man Group Plc, the biggest publicly traded hedge fund, said it would buy back $150 million of stock and that redemptions declined in October. The shares rose.
Man Group plans to use a portion of its $1 billion of surplus regulatory capital to repurchase shares, the London-based company said in a statement today. Chief Executive Officer Peter Clarke said requests by clients to pull money declined last month from September after investors became less concerned that Europe’s sovereign debt woes would trigger a global financial crisis.
“Redemptions have fallen back to more normal levels,” Clarke told reporters on a conference call. “The equity markets have a more solid feel to them.”
Man Group’s performance suffered during August and September as concern that a Greek default might spread contagion to Italy and Spain caused investors to pull money from hedge funds overseen by GLG Partners LP. Man Group acquired GLG last year to add funds managed by individual stock pickers and bond investors after analysts questioned whether the company was too reliant on Man AHL Diversified, a $25 billion strategy that uses computer algorithms to spot trades in futures markets.
The shares rose 2.4 percent to 144.7 pence in London. The stock is still down 51 percent this year, giving Man a market value of 2.7 billion pounds ($4.3 billion).
The company suffered $2.7 billion of client outflows in the three months ended in September, with investors pulling $1.5 billion from funds overseen by GLG. So-called long-only funds, which bet on rising stock markets, had $1.1 billion of outflows. Client redemptions for the third quarter totaled $7.3 billion, compared with $4.6 billion of sales.
“The biggest concern among investors was that this massive flight to liquidity that occurred in September would follow through to October,” Peter Lenardos, an analyst at RBC Capital Markets in London, who has an “outperform” rating on Man Group, said in an interview. “Management has realized there has been a share-price performance issue and that they needed to rectify that,” Lenardos said of the decision to buy back stock.
Pretax profit dropped to $195 million in the six months through September from $227 million in the year-earlier period, Man Group said today. Earnings surpassed the forecast a month ago that pretax profit would be about $185 million. Assets under management fell 1.6 percent in October to $63.5 billion after AHL suffered investment losses.
Man Group makes money by charging clients fees for overseeing assets and for any investment gains in its hedge funds. The company’s net management and performance fees declined 4 percent to $241 million in the six months ended in September from the same period a year ago.
While Clarke said client redemptions declined to a “more normalized” level in October, he expects sales of the company’s products to remain suppressed until the volatility stemming from Europe’s debt crisis subsides. German and French officials yesterday raised the prospect of kicking Greece out of the euro if its people vote against a proposed bailout package in December.
“Extreme volatility severely tested investor risk appetite,” Clarke said. “We are planning on the basis that investor appetite will remain subdued whilst markets remain volatile and uncertain.”
The MSCI World Index declined 17 percent from July to September. Hedge funds fell 6.5 percent during the period, their worst three months since the fourth quarter of 2008, according to Chicago-based Hedge Fund Research Inc.
GLG hedge funds had $1.5 billion of investment losses for the six months ended in September, Man Group said in the statement. Long-only funds lost $1.6 billion.
AHL was a bright spot for the company in the six-month period, gaining 8.4 percent and adding $1.1 billion of investment performance, according to the statement. AHL, which follows trends in futures prices, fell 6.2 percent last month, hurt by currency wagers and bets stocks would decline.
AHL hedge funds are 11 percent on average below their so-called high-water mark, which is the level at which Man Group can charge clients performance fees, Clarke said.