Man Group Declines After Profit Hurt by Weaker Fees

  • Pretax profit at $400 million, lower than $481 million in 2014
  • Compensation costs increase as performance fees decline

Man Group Plc, the world’s largest publicly traded hedge fund firm, said profit fell 17 percent in 2015 as performance-fee revenue and margins dropped. The shares declined the most in six months.  

Adjusted pretax profit fell to $400 million from $481 million a year earlier, the London-based company said in a statement on Wednesday. That missed the $424.9 million average estimate of 13 analysts in a Bloomberg survey. Man Group shares fell as much as 8.2 percent, the most since August, and were trading at 151.9 pence at 12:30 p.m. in London.

“The ongoing volatility in the markets in which we operate remains very challenging and, accordingly, the risk appetite of our clients might impact flows,” Chief Executive Officer Manny Roman said in the statement. “We now have a more diversified offering and a range of attractive options for growth, which have strengthened the firm and enhanced our resilience.”

Global markets from stocks to commodities whipsawed last year, making investors cautious and limiting the money they set aside for hedge funds. Performance fees and margins fell at Man Group as investors who did allocate capital placed their cash in lower-priced money pools. Net inflows were $300 million last year.

Compensation Costs

The money manager saw compensation costs increase to $462 million in 2015 from $391 million the previous year, and it was that, along with the fact earnings per share was only in line with forecasts, prompted the shares to drop, according to David McCann, an analyst at Numis Securities Ltd. in London.

The jump in compensation was driven by an increase in headcount and performance related payouts at its GLG unit that rewards staff with a percentage of profit they make. Money managers at GLG equity long-short funds earned more than was generated in performance fees, according to the statement.

Man Group retained $480 million in surplus capital to fund potential acquisitions after being unable to find deals last year at acceptable prices. “We will review the decision in the course of this year and retain the ability to execute buybacks if advantageous to do so,” according to the statement.

Assets under management rose to $78.7 billion, up 8 percent from a year earlier. Fund performance gains at $2.4 billion in 2015 were below $3.6 billion in 2014, according to the statement.

(Corrects pre-tax estimate in second paragraph.)