UPDATE 3-Man Group inflows slow, profit margins narrow

Fri Aug 1, 2014 12:36pm EDT

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(Adds context on share price fall, comment by analyst)

* H1 FuM rise 7 pct to $57.7 bln after net inflows of $2.8 bln

* Q2 net inflows down 60 pct vs Q1 at $800 mln

* CEO says remains cautious on second half

* To pay interim div of 4 cents/share vs year ago 2.6 cents

By Nishant Kumar and Simon Jessop

LONDON, Aug 1 (Reuters) - Hedge fund manager Man Group Plc reported a sharp fall in net inflows in the second quarter on Friday and its chief executive said he was cautious on the outlook for the rest of the year, attracting a mixed reaction from analysts.

The results came the day after a debt default by Argentina that has weighed heavily on shares of asset managers across the region. At 1454 GMT, Man Group and peers such as Ashmore Group , Jupiter Fund Management and Schroders were all trading down more than 2 percent.

Man, whose shares have collapsed to a fraction of their 2008 peak, has been restructuring to reduce dependence on the computer-driven AHL fund that took a heavy battering from the fallout from the financial crisis which began six years ago.

However the company, which is buying asset managers Numeric and Pine Grove to increase its presence in the United States, remains at the mercy of unpredictable market volatility from factors such as the Ukraine crisis.

Man said funds under management rose 7 percent to $57.7 billion in the first half, helped by net inflows of $2.8 billion. But net inflows in the June quarter plunged to $800 million, a 60 percent drop from the previous three months.

"Whilst it has been a positive first half for the firm and we recorded another quarter of net inflows in Q2, we remain cautious as we look to the second half of the year," said Chief Executive Manny Roman in a statement.

Its investment performance added $700 million in the first half, led by a 8.7 percent gain for its AHL Diversified Programme, as stronger equity and bond markets and a lower correlation between asset classes benefited the strategy.

"Given the pending acquisitions and improved AHL performance, we believe that Man's cautious outlook should have little impact on investors," said Peter Lenardos, an analyst at RBC Capital Markets.

While the company is on course to reduce its dependence on AHL and strengthen its business in the United States, the world's biggest market for hedge funds, a dip in margins in the second half also weighed on the stock.

The group's net margin was down at 1.21 percent in the first half from 1.5 percent at the end of last year.

"Management was a bit downbeat on the flows in the second half and also the revenue margins going forward," said David Mccann, an analyst at brokerage Numis Securities.

Man Group shares ended down around 1.85 percent at 116.8 pence. The shares have risen 37 percent this year.

LESS MONEY

Man also said a majority of its GLG alternatives funds, which aim to profit in both rising and falling markets, had lost money in the June quarter. They raised significantly less money than in the first quarter, raising concerns that flows may slow there in coming quarters.

The company's "long-only" products, which unlike the GLG alternative funds do not make active bets on prices falling, saw funds under management rise 18 percent to $18.1 billion on net inflows of $2.4 billion in the six months to end-June. However these are lower-margin products.

"This product mix shift and consequent reduction in overall margin is likely to continue as we sell more open-ended alternative product, particularly to institutions," Man said.

The GLG unit recorded a positive performance in credit strategies, but equity strategies had a below-average performance on trend reversals in certain parts of the equity market, Man said in a statement.

Group adjusted profit before tax rose by a tenth to $148 million as a result of cost savings, but both management and performance fees fell in the first half from a year ago.

The money manager said it would pay an interim dividend of 4 cents per share, up from 2.6 cents a year ago, and added that the acquisition of Pine Grove, a U.S. fund of funds manager, is due to complete shortly.

The acquisition of Numeric, a U.S.-based computer-driven 'quant' manager that supplements its AHL strategies with $14.7 billion of funds under management, is also on track for completion the second half of the year.

(Editing by David Holmes amd Shadia Nasralla)

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