Duncan Mavin is a former Bloomberg Gadfly columnist.

A criticism often lodged at Man Group is that the hedge fund firm is a black box investors don't fully understand. But it was a very clear message -- the company wants to spend surplus capital on acquisitions rather than stock buybacks -- that helped send Man's stock down as much as 8 percent on Wednesday.

The stock now trades at about 10.4 times 2016 earnings, less than the 12.7 percent average of its peers, according to Bloomberg data.

Shares Hurt
Man shares fell as much as 8 percent after earnings missed estimates
Source: Bloomberg data

That seems harsh. Sure, Man's results for 2015 were disappointing -- pretax profit fell 17 percent from a year earlier to $400 million, missing the $455 million consensus estimate of analysts surveyed by Bloomberg. The decline was partly the result of higher compensation costs tied to fund performance in a prior year.

Man also faces headwinds that are troubling the entire asset management industry. Regulators in the U.S., U.K. and Europe have turned their focus on fees, competition and the systemic risk posed by the sector. The outcome of this is hard to know, but it will surely lead to higher compliance costs for all.

More urgently, turbulent financial markets are a worry. Looking into 2016, Man's CEO Manny Roman said "the risk appetite of our clients might impact flows."

Active asset managers are also facing up to the rising threat of passive funds. Retail tracker funds in the U.K. more than doubled their market share from about 5 percent in 2001 to about 13 percent by the end of last year, according to the Investment Association, an industry group. Here, though, Man has an advantage over some competitors: its business is much more skewed toward alternative assets that are less threatened by passive funds than, say, traditional equity funds.

Yet despite all this, Man is attracting funds at a steady clip: funds under management increased from $72.9 billion to $78.7 billion last year.

Assets Rising
Man's funds under management have climbed for two consecutive years
Source: Bloomberg data

Against this backdrop, Roman's aim to spend $480 million in surplus capital on new businesses rather than hand it back to shareholders makes sense.

More scale will help Man better absorb rising compliance costs and diversify its client base. Man has already expanded quickly in the U.S. -- clients from the region make up 22 percent of the total now, compared with 8 percent in 2010. More diversification into that major marketplace would help defend Man from the risk of funds under management being dented as clients from one region pull money.

Coming to America
American clients account for a greater proportion of Man's funds under management
Source: company filings

Investors should also give Roman some credit on the deal front. Man integrated three acquisitions alone last year. More deals will always come with some execution risk -- but Roman and his team note that the recent bout of market volatility should bring down the price of potential targets. Buying scale and diversity on the cheap would be a clear message investors ought to back.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Duncan Mavin in London at

To contact the editor responsible for this story:
Edward Evans at