Fitch Affirms Man Strategic Holdings Ltd at 'BBB'; Outlook Stable

Wed Jun 18, 2014 5:16pm EDT

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(The following statement was released by the rating agency) LONDON, June 18 (Fitch) Fitch Ratings has affirmed Man Strategic Holdings Ltd's (Man) Long-term Issuer Default Rating (IDR) at 'BBB'; Outlook Stable. KEY RATING DRIVERS - IDRS The affirmation reflects Man's sound franchise in alternative investment fund management, strong liquidity, low leverage and moderate credit, liquidity and market risks from its balance sheet. The affirmation also considers Man's variable but improving earnings and profitability and signs of stabilisation in its funds under management (FUM). As of 31 March 2014, Man did not have any debt, having repaid its outstanding debt in 2013. Fitch believes that management actions to reduce costs and repay outstanding debt support Man's ratings, particularly as this has helped to address pressure on the blended margin caused by reduced structured FUM which carry higher margins. Management fee margins are strong relative to long-only managers and EBITDA margins are expected to remain healthy in the absence of material market value declines or outflows. Fitch notes the improvement in performance fees during 2013, although these fees are volatile by nature. Fitch notes Man's recent small acquisition of Pine Grove with AUM of USD1bn, which is less than 2% of AUM, as well as the possibility of a larger but still not transformational acquisition of Numeric Holdings, which has AUM of USD14bn or around 25% of Man's AUM. However, Fitch does not view these as rating sensitive because the potential acquisition would not result in a structural change to Man's business profile. FUM saw positive inflows during 2H13 and Fitch believes that positive net flows continued in 1Q14. FUM had been on a declining trend for some time and overall 2013 saw absolute AUM decline by USD2.9bn due to outflows in 1H13. Increasing FUM and fund performance remains an important challenge for management. KEY RATING SENSITIVITIES - IDRS A sustained stabilisation or improvement in FUM and underlying earnings combined with maintaining low leverage, strong liquidity and low balance sheet investments could lead to positive ratings momentum in the long term. Continued improvements in profitability metrics and could also contribute to positive rating pressure. Downward pressure could arise from a material reduction in profitability and/or net cash. A material increase in gross leverage as a result, for example, of an acquisition, would also be a negative rating driver. However, this is not Fitch's expectation as potential acquisitions are expected to be funded with surplus capital as previously indicated by management. While negative flows and earnings pressure remain rating constraints, the risk of these resulting in a rating downgrade was reduced by Man repurchasing its debt in 2013. Sustained outflows are likely to constrain ratings and a material deterioration in outflows could introduce downwards pressure on the rating. Contacts: Primary Analyst Denzil De Bie Director +44 20 3530 1592 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Alan Milne Associate Director +44 20 3530 1491 Committee Chairperson Nathan Flanders Managing Director +1 212 908 0827 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014 and Investment Manager and Alternative Funds Criteria, dated 12 December 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Investment Manager and Alternative Funds Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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