Man Group Plc, the world’s largest publicly traded hedge fund, will reduce pay and eliminate jobs in a plan to reduce costs by about 10 percent as market turmoil prompted clients to withdraw money.
The $75 million of reductions will add to $40 million already being implemented, Chief Executive Officer Peter Clarke told reporters on a conference call today. Two-thirds of the savings will be made this year and the rest in 2013, he said. The firm employed about 1,600 people at the end of March.
Man Group is trying to make savings as turmoil in Europe hurt its investment returns. Clients withdrew a net $2.5 billion from the company’s investment funds during the fourth quarter amid concern that Europe’s sovereign debt crisis would make it difficult for money managers to find profitable wagers. Assets under management fell to $58.4 billion at the end of December from $64.5 billion three months earlier, the firm said.
The decline in assets under management was “in line with reduced expectations, but the cost savings are an unexpected positive,” Haley Tam, an analyst at Citigroup Inc. who rates the stock a “neutral,” wrote in a note to clients today.
The shares rose 6.8 percent to 114.4 pence in London trading for a market value of about 2.1 billion pounds ($3.2 billion). The stock has declined 9 percent so far this year.
‘Attack’ Cost Base
“Man should attack its expense base,” Barclays Capital analyst Daniel Garrod, who rates Man Group “overweight,” wrote in a Jan. 16 report to clients. The company should reduce its dividend and consider pay cuts for fund managers, particularly at the GLG Partners LP unit acquired in 2010, he wrote. “If GLG outflows continue, management need to do more here, addressing staff numbers” and pay, he said.
Man Group’s revenue comes from fees for managing client money, and fees charged for any investment gains on the funds. Analysts have been reducing 2012 profit estimates for Man Group after concluding that the decline in assets and investment losses for the firm’s biggest hedge fund, AHL Diversified, will threaten fees the company charges clients.
Man Group said adjusted pretax profit in the nine months through December was $257 million compared with $599 million in the 12 months through March 2011. Man Group is changing year-end reporting period to December.
“Trading conditions have been tough,” Clarke said in a statement today. “Investment performance varied significantly across styles, with market volatility and reduced market liquidity impacting trading opportunities.”
Barclays’s Garrod this week cut his earnings-per-share estimate for the company to 12 pence a share from 17 pence. JPMorgan Chase & Co. analysts led by Rae Maile reduced their 2012 profit estimate for Man Group to 5.7 pence from an earlier estimate of 25.7 pence, according to a Jan. 6 note to clients.
AHL, a $21 billion program that uses computer algorithms to spot profitable trades in futures markets, fell 7.7 percent in the fourth quarter, Man Group said in the statement.
AHL funds would now have to rise about 12 percent on average to hit their so-called high-water mark, the point at which Man Group can charge investors fees for positive investment performance, the company said. Reaching the high-water mark will probably take about 12 months, according to JPMorgan’s Maile. Investors pulled a net $800 million from AHL in the fourth quarter.
The company’s investment funds, which include hedge funds and so-called long only strategies that bet on rising asset prices, lost a net $1.5 billion in the fourth quarter.
Man Group paid $1.6 billion for GLG in 2010 to add hedge funds overseen by individual stock and bond investors after analysts questioned whether the company’s product offerings were too dependent on the computer-driven AHL.
Outflows from GLG totaled $1 billion in the fourth quarter, Man Group said in the statement. Clients mainly pulled money from GLG hedge funds that invest in securities issued in Europe and emerging markets, the company said. Man Group has dropped 49 percent since it announced the GLG acquisition on May 17, 2010.
Noam Gottesman, a founding partner of GLG, stood down as co-CEO of GLG to take on the role of non-executive chairman of GLG’s units in the U.S., Man Group said today. Manny Roman will continue as sole CEO of GLG and chief operating officer of Man Group, the company said.