"Black box" fund may not be enough to revive Man

LONDON, July 24 Mon Jul 23, 2012 7:00pm EDT

LONDON, July 24 (Reuters) - A recent uptick in the performance of its flagship AHL fund may not be enough of a cure for hedge fund manager Man Group after a sharp fall in assets, analysts said.

The firm, whose shares have lost more than three quarters of their value since the start of last year as clients withdraw funds, is set to report interim results for the six months to the end of June on Tuesday.

Last month Man signalled a fightback when it replaced finance director Kevin Hayes with Jonathan Sorrell, son of WPP chief Martin Sorrell, a move that has raised hopes of further cost cuts.

Man's $19.5 billion "black box", computer-driven, fund AHL, meanwhile, has profited from short bets on oil and metals and long positions in U.S. Treasuries and UK gilts, gaining 4.5 percent between May 21 and July 16, a 1.1 percent rise for the year.

"A move in AHL is helpful, but it does need to do a bit more before any analysts start to revise their forecasts up," Singer analyst Steve Keeling, who rates the shares a buy, told Reuters.

"Man Group is a relatively binary play. If AHL was performing better then the share price wouldn't be 60 pence or so. What's in their control is the cost base. I'd like to see the company tackling the cost base with a bit more vigour."

Analysts at Citi have called on Sorrell to bring forward $25 million of cost cuts from next year to this year, part of the $75 million extra cuts announced in January.

Despite widespread criticism of its 2010 acquisition of GLG for $1.6 billion, Man in May bought fund firm FRM to try to reduce dependence on AHL, in a deal that has been much better received.

Analysts nevertheless remain divided on a stock that has proved volatile and hard for the market to value.

While assets trickle into the $2 trillion hedge fund industry, Man has seen a client exodus for the past three quarters, while assets have also fallen as it cuts borrowings in its guaranteed products division on the back of poor performance.

Singer expects Man to report $1.6 billion of net outflows during the three months to end-June, slicing assets to $52.2 billion from $59 billion at end-March, while RBC Capital Markets expects assets to fall to $53.4 billion after $1.5 billion of net withdrawals.

"In our opinion, Man is currently trading at a level only slightly above its liquidation level, which we believe is 60 pence," said RBC analyst Peter Lenardos, who rates the shares "sector perform" with above average risk, in a recent note.

Man shares closed 0.4 percent lower at 69.15 pence on Monday. Last month the firm was demoted from the FTSE 100.