Man Group finance head exits as "fightback" begins

MONACO/LONDON Mon Jun 18, 2012 8:22am EDT

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MONACO/LONDON (Reuters) - Embattled hedge fund firm Man Group Plc dropped its finance chief on Monday in its latest management reshuffle designed to regain investor confidence and reverse poor performance at the flagship AHL fund.

Man said Kevin Hayes was leaving immediately and would be replaced by Jonathan Sorrell, son of WPP Plc chief Martin Sorrell and formerly Man's head of strategy and corporate finance.

The shake-up coincided with Man, whose shares have plunged by almost 70 percent in a year, dropping out of Britain's FTSE 100 blue-chip stocks index.

A source close to the company said the changes reflected a "fightback" move aimed at revitalizing Man's strategy and luring back unsettled investors.

But a recent raft of personnel changes has failed to impress some analysts who say Man is effectively "uninvestible" until its misfiring 'black box' fund AHL starts to perform.

"It's in the same category as red on the roulette wheel," said Numis analyst David McCann, who rates the shares a sell.

Last week Man said its Head of Research Methodology Darren Upton, who led the team responsible for developing trading models for AHL, had left to join to ISAM, a rival company set up by former Man CEO Stanley Fink.

That move followed a revamp of the AHL leadership team, when industry veteran Douglas Greenig was appointed to AHL's Chief Risk Officer role, replacing Matthew Sargaison who has become Chief Investment Officer of the fund.

Philip Middleton, an analyst at Bank of America Merrill Lynch said it was hard to lay the blame for AHL's performance at Hayes' door, but his approach to managing Man's balance sheet "and layers of bank-like capital" needed a rethink.

Man shares continued to trade erratically on Monday, in a market preoccupied by the results of the Greek election. Shares were trading up 1.2 percent at 73.65 pence by 0731 EDT, ahead of a 0.4 percent rise in the FTSE All-Share index.

Yielding around 20 percent, the stock is three times more volatile than the blue chip index and experts suspect Man has much to do before it starts to win back investors and the clients who have taken more than $6 billion out of the company's hands in the nine months to end-March.

Man's acquisition in 2010 of fund firm GLG for $1.6 billion - widely criticized by analysts as too expensive - was supposed to diversify the manager's sources of potential profits but AHL still accounts for two-thirds of the group's revenue.

"Personally, I do not believe that this stock can be invested in until there is a greater degree of macroeconomic stability and I would happily miss out on 50 percent of the upside for that surety," Peel Hunt Analyst Mark Williamson, who was bullish on Man at the start of 2011, said in a note recently.

CLIENT OUTFLOWS

Hayes himself invested 88,100 pounds in 50,000 Man shares at 176.2 pence each in September, in a move seen at the time as an attempt to shore up confidence following a surprise surge in client outflows in the previous quarter.

The $19.5 billion "black box" AHL fund, named after 1980s founders Michael Adam, David Harding and Martin Lueck, lost 6.4 percent in 2011 and is down an estimated 1.4 percent so far in 2012.

It was around 14 percent away from its so-called high-water mark in March, the level at which it can start earning performance fees for Man.

The company's depressed share price has fed rumors of a takeover bid over many months but analysts say the number of potentially interested suitors would be small.

"Why do you buy someone else's problems unless you have problems of your own? There's a lot more high quality assets out there," said one analyst who spoke on condition of anonymity.

But not everyone is bearish. This month Citi upgraded the group's shares to 'buy', based on valuation and belief that AHL's performance "cannot get sustainably worse from here".

Nevertheless, AHL's track record could worsen if, as some expect, the euro zone crisis rumbles on, keeping market volatility high and stopping trends emerging.

A source close to the company said Sorrell had the experience and skills to manage such a challenge, echoing comments from Chief Executive Peter Clarke who said Sorrell had played an instrumental role in Man's recent takeover of FRM.

"In his new position, Jonathan's experience in financial markets, especially his deep working knowledge of the hedge fund industry, will be extremely valuable as we continue to develop and evolve in challenging world markets," Clarke said.

Sorrell joined Man less than a year ago after a decade in the investment management and the securities and investment banking divisions at Goldman Sachs, where he latterly led investments in a broad range of hedge fund firms.

(Editing by David Holmes and David Cowell)

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