HEARD ON THE STREET: The Descent Of Man

8th Jul 2010 15:50

By Hester Plumridge A DOW JONES COLUMN Investors have been flocking back to hedge funds this year, but not to Man Group. After two consecutive years of outflows, the global hedge fund industry took in $13.7 billion in net new capital in the first quarter, according to Hedge Fund Research. But U.K.-listed Man has seen assets fall 9% so far this year. Private investors, the bulk of its business, withdrew a net $600 million in funds in the second quarter, just as they did in the first. The issue is not primarily performance. Although Man's flagship fund AHL is still 14% below its high-water mark, where the group can charge performance fees, it is up 2.3% for the year to end-May. That compares with 1.3% for a global index of hedge funds. Ore Hill, Man's other single managed fund, is up 19.4%. Man hopes solid investment performance will ultimately boost sales, which are currently near historic lows. But its high-fee, retail-focused business is flagging. Man made a fortune during the boom pushing capital-guaranteed versions of its funds in markets such as Asia, but capital guarantees are becoming more expensive while tastes are changing: sales have recently been overtaken by lower-margin, open-ended fund products. Man has also struggled to grow its institutional business, crucial now institutions make up almost three-quarters of total hedge fund investment. Institutional clients have fallen to just 30% of assets under management, compared to a historical target of around 40%. Man's institutional redemptions slowed in the second quarter, but its managed account business, key to driving future sales, is growing only gradually and it faces strong competition from lower-cost rivals such as Winton Capital. True, Man's $1.6 billion acquisition of GLG Partners, expected to close this September, will boost both its product offering - into long only funds - and its institutional business. But even so, with margins for institutional business some three times lower than those for private clients, Man will struggle to its pre-2008 glory days. Man shares are down 40% year to date, a reflection of how far investors' faith in Man has been shaken. (Hester Plumridge is a writer for Heard on the Street. She can be reached on +44 20 7842 9267 or [email protected]) TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. (END) Dow Jones Newswires July 08, 2010 10:50 ET (14:50 GMT)