Man Group Plc, the world’s biggest publicly traded hedge-fund manager, reported $2.7 billion in fourth-quarter client outflows, adding pressure on new Chief Executive Officer Emmanuel Roman to improve performance.
The withdrawals from Man Group’s hedge funds and other investment funds offset sales of $2.6 billion in the period, the company said in a statement today. Assets under management fell to $57 billion at the end of 2012 from $58.4 billion a year earlier, in line with the $57.2 billion estimate of RBC Capital Markets analyst Peter Lenardos.
Man Group has now had six consecutive quarters of outflows. Roman, a former Goldman Sachs Group Inc. executive who joined Man Group as part of its 2010 purchase of hedge-fund manager GLG Partners Inc., took the reins from Peter Clarke today after the stock lost two-thirds of its value over the past two years. Investors questioned Clarke’s ability to turn the company around after cost cuts and new hires failed to reverse losses at Man Group’s biggest hedge fund, the $14.4 billion AHL Diversified.
Investor sentiment improved during the first two months of 2013, Roman said in the statement. Still, “given the lead time required by institutional investors to invest, gross sales are likely to remain muted in the first half and we are yet to see a slowdown in the rates of redemptions,” he said.
Man Group also posted a full-year pretax loss of $745 million after taking an additional $746 million impairment on its purchase of GLG.
The shares declined 2.7 pence, or 2.6 percent, to 100.3 pence in London trading, valuing the company at 1.8 billion pounds ($2.8 billion).
The amount of money managed by Man Group fell last year even though the company added $8.2 billion of assets by acquiring FRM Holdings Ltd., a fund-of-funds firm that charges fees for picking hedge-investments for clients.
Since the end of 2012, funds under management have shrunk further to $55 billion as of Feb. 25, Man Group said, amid more outflows and negative foreign-exchange moves.
“We had hoped for some growth,” Philip Middleton, a London-based analyst at Bank of America Corp., wrote in a report. “It is likely to depress revenue estimates.”
Man Group wrote down GLG’s value on its books because the outlook for the unit’s asset growth worsened due to the “ongoing challenging market environment.” Man Group paid $1.6 billion for GLG, which managed $15.2 billion of hedge-fund investments at the end of last year.
The shares have rebounded 30 percent since the company announced Dec. 10 that Roman, 49, would replace Clarke, spurring speculation that the new CEO will unveil new products, speed cost cuts or even try to sell the company.
Among the investors increasing their stake are New York-based BlackRock Inc., which boosted its stake in Man Group to more than 5 percent as of Feb. 25, according to a regulatory filing. The world’s largest asset manager had reduced its Man Group holdings last year.
RBC’s Lenardos said investors are too optimistic about what can be changed by Roman, who has already had a hand in setting strategy as Man Group’s chief operating officer since 2010.
“With expectations high for further cost cuts, strategic change and a takeover offer, we believe that the share price increase is overdone and is based upon hope rather than reality,” Lenardos, who has a sector perform rating on Man Group, wrote in a February 19 research note.
Man Group has made further changes since announcing Roman’s ascension. Luke Ellis, who ran the fund-of-funds unit that invested in outside hedge funds, has been promoted to president and Sandy Rattray took over for Tim Wong as CEO of the AHL unit. Man Group also increased the membership of its executive committee and said its meetings would be held more frequently. The changes were announced in internal memos over the past few weeks, according to Man Group spokesman David Waller.
AHL, which relies on computer algorithms to spot profitable trades in markets ranging from currencies to oil, fell 2.1 percent in 2012 after declining 5.5 percent in 2011, data compiled by Bloomberg shows. So-called trend-following hedge funds were hurt over the past two years as markets swung with investors’ optimism or pessimism about the European sovereign-debt crisis.
AHL has gained 2.2 percent this year through Feb. 25, boosted by trends such as the slide of the Japanese yen and the British pound against other currencies. Hedge funds tied to the trading system are now 13 percent on average below their high-water mark, the level at which Man Group can charge performance fees for positive investment performance.
Since 2011, Man Group has announced plans to cut $195 million of costs. While the company will “continue to run the business in a disciplined fashion,” it feels no pressure to announce further expense reductions, Finance Director Jonathan Sorrell said on a call with reporters today.
Roman, on the same call, declined to comment on Carl Esprey, a portfolio manager at GLG. Esprey was one of three men arrested yesterday by the U.K.’s Financial Services Authority for suspicion of insider trading, according to a person familiar with knowledge of the matter. Man Group confirmed yesterday that a GLG employee it didn’t identify had been suspended following his arrest by regulators.