Man Group client withdrawals hinder fightback

LONDON Thu Oct 18, 2012 5:18am EDT

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LONDON (Reuters) - Hedge fund manager Man Group has suffered a net withdrawal of client funds for a fifth straight quarter as its struggle to revive its fortunes is hit by poor returns from its main fund.

Man (EMG.L), whose shares are down nearly 70 percent since the start of last year on the back of outflows and poor fund returns, said clients withdrew a net $2.2 billion over the three months through September, up from $1.4 billion the previous quarter.

The company warned there were few signs of improvement.

"The flow environment continues to be challenging," said Chief Executive Peter Clarke in a statement. "Investor sentiment, and consequently the outlook for flows, continues to be subdued."

Man shares were down 6.3 percent at 86.7 pence by 8:42 a.m.

The former member of the FTSE 100 index, which has - apart from during the first six months of last year - been shedding assets since the credit crisis, has made a raft of changes this year, slashing costs and replacing its finance director in a bid to win back clients.

However, the group continues to be held back by poor returns from AHL, a $16.3 billion computer-driven "black box" fund that tries to make money following trends in global markets. The fund accounts for 70 percent or more of Man's earnings, according to brokerage Numis.

AHL, named after 1980s founders Michael Adam, David Harding and Martin Lueck, lost 6.4 percent last year and so far this year is down 0.6 percent, even as the MSCI World Equity index is up 13 percent. During the third quarter it saw $700 million of client withdrawals.

Man said on Thursday that the fund is around 14 percent away from its so-called high-water mark, the level above which it can earn lucrative performance fees.

POOR NUMBERS

Numis analyst David McCann said that unless markets return to showing steady trends, "we believe it will become increasingly difficult to sell AHL to new investors and retain existing ones as the poor numbers start to impact the medium- and long-term record".

Meanwhile GLG, the fund firm it bought in 2010 in a controversial $1.6 billion deal that many analysts now view as overpriced, saw clients pull out $400 million.

"We had expected a modest improvement in GLG sales from European investors in line with the industry, but this has not happened," said Numis's McCann, who rates the stock a "sell" and says Man shares are "uninvestable".

Man shares have however rebounded by around 37 percent since early July, helped by gains in the wider market and renewed speculation of a takeover bid.

The rise has also coincided with a fightback by the firm, signaled in June when it replaced Finance Director Kevin Hayes with Jonathan Sorrell, son of WPP Group Plc (WPP.L) Chief Executive Martin Sorrell.

In July it announced another $100 million a year of cost cuts, its third wave of savings since its acquisition of GLG, bringing savings since the deal to $250 million.

And last month it hired Sudi Mariappa, former global head of portfolio management at bond fund manager Pimco, to drive a major push into fixed-income.

Man's total assets rose 14 percent over the three months to end-September to $60 billion, boosted by the recent acquisition of fund of funds firm FRM.

Man said the increase in client withdrawals over the second quarter was concentrated in lower margin products.

Guaranteed products - complex, high-margin products with a fixed term mixing a range of funds - saw a further $300 million of net withdrawals, as a unit that was once a driver of profits continues to shrink.

(Editing by Sinead Cruise and David Holmes)

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