Man Group fightback fails to convince clients

LONDON Thu Oct 18, 2012 12:10pm EDT

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LONDON (Reuters) - Man Group (EMG.L) shed client funds for a fifth straight quarter, raising fresh doubts about when the embattled hedge fund manager's campaign to restore investor confidence will bear fruit.

Man's share price has buckled 70 percent since early 2011 as poor fund returns prompted fee-paying clients to take billions of pounds of cash elsewhere.

The group has made a raft of changes this year to try and reverse its fortunes: slashing costs, launching new funds and naming Jonathan Sorrell, son of WPP (WPP.L) CEO Martin Sorrell as finance director.

The measures have so far failed to impress.

Clients pulled out a net $2.2 billion over the three months through September, compared with $1.4 billion the previous quarter, and the company warned on Thursday that there were few signs of improvement.

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

Clarke told analysts that the firm had suffered another $1.4 billion of outflows during the current quarter. Man declined a request to ask Clarke about the firm's progress.

The shares, which have rebounded by around 37 percent since early July thanks to wider market gains and renewed speculation of a takeover, were down 7.4 percent at 85.7 pence by 0951 GMT.

Man, formerly a member of the UK's FTSE 100 blue chip index, has been giving up assets since the credit crisis - save for a brief upturn during the first six months of last year.

The persistent outflows cast further doubts on the merits of the controversial $1.6 billion purchase of fund firm GLG in 2010, which has so far failed to offset volatile returns from Man's flagship computer driven fund, AHL.

In June the firm signaled a fightback when it replaced Finance Director Kevin Hayes with Sorrell, while in July it announced another $100 million a year of cost cuts, bringing savings since the GLG deal to $250 million.

"PRESSURE"

But despite its attempts to attract investors, Man continues to be held back by poor returns from $16.3 billion AHL, which 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.

In a note on Thursday, Numis warned 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".

The fund also has higher fees than rivals with better track records, added Numis, which rates the stock a sell and says the shares are "uninvestable".

On Thursday Chief Operating Officer Emmanuel Roman told analysts that it was "very hard" to know when the performance of these so-called CTA (commodity trading advisor) computer funds would improve.

"We've spent quite a bit of time trying to make performance better in AHL. Yes, we do trade slower and there are many other things we've worked on."

AHL, named after 1980s founders Michael Adam, David Harding and Martin Lueck, made large gains in 2008's market chaos but lost 6.4 percent last year and this year is down 0.6 percent.

In contrast, the MSCI World Equity index .MIWD00000PUS is up 13 percent this year. During the third quarter AHL saw $700 million of client withdrawals.

"Due to its reliance on AHL ... we see Man's share price coming under increasing pressure without a noteworthy improvement in performance at AHL," said Jonathan Gosling, financials analyst at Edison Investment Research.

AHL is around 14 percent away from its so-called high-water mark, the level above which it can earn lucrative performance fees.

The firm is considering launching two AHL computer programs - Evolution and Dimension - as stand-alone funds for investors, while Man has also been busy launching computer funds and raising money in its Man's Systematic Strategies unit.

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. The rise in client outflows over the second quarter was mainly in lower margin products, Man said.

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.

On Thursday Man said it had withdrawn its title sponsorship of the Man Asian Literary Prize. It also sponsors the Man Booker Prize, one of the most coveted awards for English language fiction.

(Editing by David Cowell)

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