Man Group Plc’s credit rating was cut by Moody’s Investors Service after assets of the world’s biggest publicly traded hedge fund firm fell by almost a third.
Man Group’s senior debt was lowered one step to Baa3, the lowest investment grade, Moody’s said in a statement today. The ratings company cited the decline in assets, investment performance that lagged the firm’s historical returns and a decrease in management fees in its decision.
“The rating downgrades reflect continuing challenges in the company’s core business,” New York-based Moody’s said in the statement. The ratings company predicted “there will be little if any retained earnings given Man’s dividend policy and ongoing earnings pressure.”
Man Group shares have fallen 57 percent in the past year in London after analysts cut earnings estimates and its biggest hedge fund, the $19.5 billion AHL computerized trading system, underperformed rivals. Man Group has responded by announcing job cuts and overhauling its sales strategy to reduce costs.
“Man has made considerable progress in addressing its cost base and expanding its investment management capabilities,” the London-based company said in a statement today. “Man remains financially robust and enjoys a strong position in the market.”
The shares rose 0.6 pence to 81.50 pence at 10:35 a.m. in London, giving Man Group a market value of 1.48 billion pounds ($2.33 billion).
Man Group assets under management declined to $52.7 billion at the end of June from $71 billion a year earlier as the European sovereign debt crisis hurt sales and prompted clients to pull money from the company’s hedge funds. Man Group has since completed an acquisition of hedge fund investment firm FRM Holdings Ltd. to add about $8 billion of assets.
AHL, which follows trends of asset prices ranging from currencies to bonds, has declined 3.3 percent this year after falling 5.5 percent in 2011, according to data compiled by Bloomberg. Before plunging 17 percent in 2009, AHL had produced an average annual gain of 18 percent since the end of 1996.
Man Group announced last month that it had a pretax loss of $164 million for the first six months of the year. Man Group pays an annual dividend of 22 cents a share, which JPMorgan Chase & Co. analyst Rae Maile called “generous” last month in light of the company’s weakening capital base.
Man Group plans to reduce costs by $100 million by cutting jobs, scaling back its business in certain countries and moving away from so-called guaranteed products that require the company to pay high sales commissions, Chief Executive Officer Peter Clarke said in July. The cost cuts added to $95 million of reductions the company announced in March.
Moody’s began reviewing Man Group’s debt for a possible downgrade in April. Moody’s said today it had cut all its debt and preferred stock ratings on the company.