Man Group: Backing the wrong horse
Man Multi-Manager was launched in 2009 by combining three multi strategies operations of Man group, but since the launch Man Multi-Manager has witnessed continuous decline in funds under management (FUM). It seems that the new brand has failed to give any added benefit to the investors. Man group has initiated few efforts to retain investor interest in this operation, but it seems it is only backing the wrong horse.
Dawdling Man Multi-Manager’s assets:
In first half of 2009, Man Multi-Manager FUM were recorded at $39.7 billion which came down to $23 billion level by the end of 2009-a decline of 42%. Investors out flows and assets price erosion were the main reason to this decline.
The assets further eroded to $17.8 billion levels in H1’10. However, the total assets consolidated during H2’10 and FY’11. The current FY2012 has been a difficult year, as the funds are now decreasing on quarterly basis.
Following chart shows Man Multi-Manager FUM trend from 2009 till the third quarter of 2012.
The raw FUM trend implies that the investors do not seems to be satisfied with what the fund offers.
Moribund FUM is now a group level issue:
Man group is facing steep decline in funds under management. Total FUM dropped by 18% to $58.4 billion on December 31, 2011 from $71 billion level recorded at the end of June. In the third quarter ending Dec 31, 2011 the group recorded sales amounting $3.1 billion against the outflows of $5.6 billion, translating into a net outflow of $2.6 billion.
On the back of volatile and illiquid market the group has faced extreme challenges impacting investment performance among different investment styles.
FUMs are continuously declining and dawdling returns portraying managements failing efforts which are resulting in investors’ dissatisfactions and outflows. The reduction in overall FUM will hurt group productivity.
The media and management on the declining FUM:
Man Group’s stock witnessed selling pressure on bourses on the back of declining FUM. The investors expect poor performance and management fees, which will hurt group profitability. As evident from the above table, the declining FUM is a group level issue representing investors’ declining confidence in the group. The management and the media have been reporting the possible issues that have hurt the organization’s AHL and GLG division. However, we rarely see any discussions over the troublesome Man Multi-Manager operations, which started to witness decline in FUM way before AHL and GLG operations.
The group is well aware of this scenario and to overcome the issues, the company made some change in their management by hiring Luke Ellis as a head of Man Multi-Manager; he is focused to build up Man’s managed accounts (MAC) portfolio. Luke was able to generate some handsome amount of inflow for Man’s managed accounts, amounting EUR 1.2 billion fromGermany’s largest pension fund Bayerische Versorgungskammer (BVK).
Moreover, during 2011 the operation managed to win one more billion mandate from the UK Universities Superannuation Fund (USS).
Despite of promised inflows and due publicity, Man was unable to bring any significant change in the investors’ confidence.
Man multi manager impairment dented 2011 earnings:
During 2011, the company posted huge non-cash impairment of $375 million in Man Multi-Manager. The impairment was calculated after assessing the business value and future cash flows. At the end of financial year 2011, fair value derived from various methods was applied to bring Man Multi-Manager to a realistic value.
Moreover, as per the management decision, man multi structured products will not be following Man Multi-Manager content, instead they will be following GLG strategies in future. This shift is expected to slow down the sales and fee income, which will result in lower revenues and cash flows for this operation.
What will be the role of multi manager in 2012 earnings?
As per the nine months results for the period ended December 31, 2011, the firm informed its investors that they were able to generate some positive flows of