Finance

Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

The good news from the world's largest publicly traded hedge-fund firm is the industry is back in fashion. The bad news is that even the world's largest publicly traded hedge-fund firm is suffering a squeeze on fees.

Fee Compression
Man Group's net management fee margin
Source: Company filings

Tuesday's earnings from Man Group Plc are something of a curate's egg. The 9.2 percent drop in net margins in the first half of this year is the worst since the 14 percent shrinkage in the first half of 2015 -- and means fees are down more than 30 percent since the end of 2014.

The problems facing the hedge-fund industry are well known. In short, their performance hasn't justified what they used to charge. Competing cut-price products such as mostly passive exchange-traded funds have attracted investor cash that might previously have been allocated to active hedge-fund managers.

On Track for Best Year This Decade
Year-to-date inflows into European ETFs have already surpassed full-year percentage gains seen since 2013
Source: ETFGI {http://etfgi.com/news/detail/newsid/2211}

After flat-lining for several quarters, Man's funds under management reached a record $96 billion by the end of June, boosted by a combination of net inflows of $8.2 billion, a $3.8 billion gain from rising market values and an acquisition that added $1.8 billion.

Not Dead Yet
Man Group's funds under management reached a record in June
Source: Company filings

Man says it expects both inflows and fee compression to moderate in the second half. There's certainly life in the hedge-fund industry yet -- provided it can learn to cope with the somewhat straitened circumstances imposed on it by the rise of cheaper competition.

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

To contact the author of this story:
Mark Gilbert in London at magilbert@bloomberg.net

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