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The shares of Man Group, the world’s largest listed hedge fund manager, experienced a steep decline as performance fees and profits saw a significant drop.
By late morning, shares had fallen 9% to 216.70p, following the announcement that fees generated from fund returns had plummeted 92% to $32mn in the first half of the year. This decline also resulted in a 65% decrease in pre-tax profits, which amounted to $137mn.
However, despite this setback, assets under management for the London-based group grew by 6% to $152bn in the six-month period ending in June, slightly surpassing analysts’ expectations.
The decline in fees can be attributed in part to unsuccessful market bets, although Chief Financial Officer Antoine Forterre emphasized that the company had recently enjoyed two successful years. He stated, “Q1 was a bit more difficult for some of our strategies, but if we look at where we are now, most of our funds are back flat or slightly up for the year. The truth is that clients care about longer-term performance and that is what they assess us on.”
Approximately two-thirds of Man Group’s $152bn under management is invested in hedge fund-style strategies that aim to earn profits in both rising and falling markets. The remaining third is allocated to traditional long-only strategies, which perform best in up markets.
Man Group hopes to attract potential customers away from popular index trackers and towards its own funds by taking advantage of the increasingly unpredictable investment climate resulting from rising interest rates.
Analysts at JPMorgan believe that the shares of Man Group remain “attractive” due to a favorable price-to-earnings ratio. However, Numis analyst David McCann expressed caution, stating that it is not a stock to hold long-term given the volatility of performance fees and their impact on earnings.
In early July, Man Group acquired Varagon, a specialist credit fund based in the US, which added $11.8bn in assets under management to their existing $3.2bn private credit business. Man Group aims to further expand its credit offering and is currently considering additional acquisitions. Forterre mentioned, “We are still somewhat underweight and we think that our large clients continue to allocate more to credit. So to the extent we can find businesses that have the same characteristics as Varagon, strategies that don’t really overlap with what we do, with a good investment team, a good investment record, a good culture and some ability to cross sell with our clients, we will certainly look at it.” He also added that the company is open to exploring potential acquisitions in both the US and Europe.
The core strategy of Man Group is to serve as a comprehensive investing solution for large institutional clients. Through Man’s solutions business, clients can create a custom portfolio using a mix of long-only managers, traditional equity hedge funds, quantitative hedge funds, and private credit.
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