Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Call it key man risk.

Key Man Risk
CEO "Manny" Roman's departure for Pimco takes its toll on Man Group's share price
Source: Bloomberg
Intraday times are displayed in ET.

Man Group, the world's biggest publicly traded hedge fund manager, is looking blue after the departure of CEO Emmanuel "Manny" Roman to Pimco -- once the world's biggest bond fund. The stock fell almost five percent on Wednesday's announcement.

But Roman's exit is by no means the type of key man risk that Pimco itself suffered when its own guru-in-chief Bill Gross left in 2014. The star manager's abrupt departure in 2014 contributed to a 25 percent decline in Pimco's assets under management to $1.5 trillion and led to job cuts.

Step Up
Pimco is several orders of magnitude bigger than Man Group in terms of assets under management
Source: Company reports

Roman's move does leave a hole in that he helped Man Group to grow through acquisitions. The company's recent deals have expanded its footprint in the U.S., with quant-focused Numeric Holdings and leveraged-loan manager Silvermine Capital Management, while diversifying further into markets such as real estate and beefing up investment arm GLG.

Diversified Strategy
Man Group has become more diversified under its outgoing CEO, reflecting M&A and new hires
Source: Barclays

It makes sense for Pimco, a unit of Allianz, to try to bottle some of that magic instead of chasing a star to replace Gross.

For Roman, it will be an uphill struggle: he needs to staunch redemptions, increase inflows as well as prune Pimco's complex structure.

The firm needs to diversify away from bonds in a world of zero or negative yields. Like all asset managers it also faces competitive pressure from passive funds. It's likely therefore that acquisitions -- and not just hires -- will be on the agenda. Here, Roman's past work experience at Goldman Sachs and GLG will help: he has knowledge of different asset classes and markets.

Yet you can't blame Man Group investors for feeling Roman's job was only half-done. Man's share price is up some 40 percent since he took over and assets under management have been rising. The stock still trades at just under 10 times estimated earnings, a discount to its peers, according to Bloomberg data.

Stock-market volatility has hurt Man's performance-fee revenue and pushed investors to pull back from hedge funds. Diversification has improved, but Man's computer-powered AHL unit, which had a drab second quarter, still accounts for almost half of assets that generate performance-based profits.

With $480 million in excess cash to spend on acquisitions or return to shareholders, Man Group has some firepower on standby -- but it looks like Roman won't be the one to deploy it. That job will fall to his successor Luke Ellis, the company's current president, and CFO Jonathan Sorrell. 

But Pimco may now be the company to watch as Brexit and volatility create opportunities for takeovers.

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

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net