Man Group Plc, the world’s largest publicly traded hedge-fund manager, surged the most in three months after its first-half earnings beat analysts’ estimates, helped by higher performance fees at its GLG Partners unit.
Adjusted pretax profit rose 9.8 percent to $134 million, with fees for investment gains more than tripling to $90 million, the London-based company said in a statement today. That beat the $84 million pretax profit estimate of RBC Capital Markets analyst Peter Lenardos and the $95 million forecast by Barclays Plc analyst Daniel Garrod.
GLG accounted for $59 million of Man Group’s performance fees as its hedge funds benefited from a calming of the European sovereign debt crisis and lower correlation between stocks and bonds, making it easier to pick profitable investments. Man Group’s assets under management shrank 8.8 percent in the first half to $52 billion on June 30 amid losses at AHL Diversified, the firm’s biggest hedge fund.
“The outlook remains, rightly, cautious,” Rae Maile, an analyst at JPMorgan Chase & Co., said in a note to clients today. “AHL’s performance will remain the key driver of the share price, we are sure, but management does at least deserve some plaudits for no longer simply waiting for an upturn.”
The stock jumped 9.5 percent to 91.5 pence in London trading today, the biggest gain since May 3. The shares have climbed 10.6 percent this year, valuing the company at about 1.8 billion pounds ($2.8 billion).
Man Group said it will pay a first-half dividend of 2.6 cents a share, following company policy of passing on the company’s management fees to investors. Man Group charges clients fees for overseeing investments and more lucrative performance fees for any profits made in its portfolios.
GLG’s main equity hedge fund gained 4.7 percent in the first half of the year, while its fund focused on buying distressed assets in Europe rose 5.1 percent. Its main macro fund, which makes wagers based on global macroeconomic trends, returned 7.2 percent.
Hedge funds on average rose 3.4 percent in the first six months of 2013, according to Chicago-based Hedge Fund Research Inc. Assets at GLG hedge funds declined by $1 billion to $14.2 billion in the first half.
Man Group’s share price has followed the fortunes of AHL, a $13.9 billion hedge fund that relies on computer algorithms to spot profitable trends in interest rates, bonds, stocks and currencies.
AHL climbed 11 percent through April of this year, boosted by trends such as a falling Japanese yen and rising stock prices in the U.S. The gains helped trigger a 24 percent increase for Man Group shares through the first four months of 2013.
AHL then reversed course after U.S. Federal Reserve Chairman Ben S. Bernanke began signaling in May that the central bank may scale back asset purchases, triggering a selloff for bonds and some currencies. AHL is now down 4.3 percent this year through July, and Man Group stock has fallen 34 percent since May 21, when it set its high for the year.
AHL was “hit badly” by Bernanke’s comments on so-called tapering, Man Group Chief Executive Officer Emmanuel Roman said on a conference call today.
Man Group today said it will reduce expenses by a further $75 million, bringing total cost cuts announced since 2011 to $270 million. The latest reductions will include closing the company’s offices in Singapore, which has “single digit” employees, Roman said on the conference call.
The company’s asset decline stands in contrast to the broader hedge-fund industry, which has increased funds under management by 20 percent to $2.41 trillion since the end of 2011, according to Hedge Fund Research. Investors redeemed $11.5 billion from Man Group’s funds in the first-half of 2013, offsetting new sales of $6.5 billion.
“Trading conditions remain tough and we do not see any improvement in the near-term outlook,” Roman, 49, said in Man Group’s statement. “Investor appetite remained muted as renewed market volatility tempered investors’ willingness to put their money to work.”
Man Group has been hurt by the fact that it has few investors in the U.S., a market that has accounted for about two-thirds of the flows into hedge funds in recent years, according to UBS AG analyst Arnaud Giblat.
Roman, 49, has responded to falling assets by cutting costs, restructuring management and buying back Man Group’s debt. A slide in Man Group’s share price over the past three years prompted the company to remove former CEO Peter Clarke and replace him in February with Roman, who had been chief operating officer. Roman joined Man Group in 2010 as part of the company’s $1.6 billion acquisition of London-based GLG.