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Hedge Funds

Man Group battles outflows as biggest fund rallies

LONDON (Reuters) - Man Group suffered an eighth straight quarter of net client withdrawals, confounding hopes that a recovery in its biggest fund would help it attract investors in line with a broader hedge fund industry rebound.

The world's biggest listed hedge fund manager EMG.L, which is buying smaller rival GLG GLG.N in a bid to boost assets and diversify away from computer-driven funds, said on Tuesday clients pulled out a net $600 million in the three months to the end of September.

This was below the rate of withdrawals in the three months to June, but above the level of a year ago. Some clients are likely to have been put off by the 16 percent loss from Man’s flagship $21.9 billion AHL fund last year.

The outflows came from private clients, while institutions put in a net $100 million overall, the first net inflow from such clients in two years. Chief Executive Peter Clarke said on a call to analysts he expects institutional net inflows to continue.

Man shares were down 3.2 percent at 212 pence at 9:48 a.m., while the FTSE 100 .FTSE fell 1.1 percent.

HIGH WATER MARK

AHL -- named after 1980s founders Michael Adam, David Harding and Martin Lueck -- is up around 7.6 percent this year, well ahead of the average hedge fund’s gains.

However, clients are still on average 7 percent below the so-called “high-water mark” above which the company can charge them performance fees.

Performance at AHL is also being boosted by new programs to limit losses and reduced reliance on its traditional strategy of following market momentum.

“If you are to buy into Man Group at current levels you still need to believe that AHL performance can still recover,” said analysts at Numis, who rate the stock a “buy” on valuation and recovery grounds, but are cutting their forecasts.

AHL’s gains helped lift Man’s assets -- on which fund firms earn their standard management fees -- by 3 percent to $39.5 billion, although they are still around half the level reached in the summer of 2008.

The global hedge fund industry suffered nearly $300 billion of net outflows in 2008 and 2009, according to Hedge Fund Research, but clients are slowly returning, with small net inflows in the first two quarters of this year.

Man also said it would make an estimated first-half pretax profit of $215 million, roughly in line with analyst forecasts but below the $280 million it made a year ago, due to lower management and performance fees.

Citi analysts said the numbers were in line with their forecasts.

“Whilst many investors remain reluctant to commit capital amid current market uncertainty, solid performance is the focus for our investors and the mainstay of the medium-term sales outlook,” said Clarke in a statement.

Earlier this month, CEO Clarke told Reuters further deals in the hedge fund industry were likely but reiterated Man did not plan any more acquisitions of funds trading liquid assets.

He said the acquisition of GLG would be completed shortly after October 12.

Editing by David Holmes

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