Hedge fund manager Man sees investors return

HONG KONG (Reuters) - Man Group expects the hedge fund industry to swing to net inflows by the end of the year as institutional investors who have so far stayed on the sidelines begin to dip their toes into the market.

The fund of hedge funds reported net outflows of $3.3 billion (2.0 billion pounds) in the April-June quarter, but the industry has turned a corner in the last two months, a senior executive at Man Group (EMG.L) said on Thursday.

But the London-based alternative investment manager is yet to be fully convinced about the early turnaround in the global economy, so it stays conservative on equity investments, said John Rowsell, managing director of Man Investments, the asset management arm of Man Group.

"We are still very cautious in terms of where we think the risks are and how much normalcy or rebound there has been in the economy," Rowsell told Reuters in an interview in Hong Kong.

"Earnings have not come back as strongly as expected. More importantly, consumer's access to credit has been severely curtailed and their appetite for credit has been affected."

Man's assets under management had dipped to $43.3 billion by the end of the June quarter.

PREFERS CREDIT OVER EQUITIES

Global hedge fund managers are still clawing back from a wave of redemptions which saw investors pull out more than $150 billion from funds of funds, amid the financial crisis, according to Hedge Fund Research.

Some fund managers started to put "risk on/risk off" trading strategies in practice this year as global markets recovered, but Rowsell said it was not yet a good time to leverage risks.

Among Man's fund strategies, convertible bond arbitrage has put up a strong showing for Man after its rocky performance in 2008, while its credit strategies have also done well but returns from macro have been subdued, Rowsell said.

"Commodities have also been making money without necessarily going long on them. Basically, you can make very attractive returns without having a lot of beta in your portfolio at this juncture," said Rowsell, a former director at the Chicago Mercantile Exchange.

Rowsell said Man preferred to invest in markets which have higher "dispersion" such as Japan and the Western markets over China, which many other asset managers regard a top pick.

In the wake of the Lehman Brothers debacle, Man has been adjusting its business model to better manage risks by transferring a part of its investments into managed accounts from co-mingled accounts.

In a managed account the hedge fund manager's role is limited to the right to make investment decisions while clients have control over the assets of the fund being managed.

"We are not doing this simply for transparency but for control over the assets. We also can then control the relationships with the prime brokers which is a potential area of risk," said Rowsell.

Rowsell said Man had been increasing the number of managed accounts as well as the proportion of its assets in these accounts and aims to move well over half its investments to managed accounts eventually.

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(Editing by George Chen and Jacqueline Wong)