In the third quarter, hedge fund, Man Group Plc (LON:EMG), reported clients have continued taking money out, as outflows rose approximately 60 percent, to $2.2 billion. This is up from the previous quarter’s $1.4 billion.
Man’s chief executive, Peter Clarke, said in a statement via the New York Times, “Investor sentiment, and consequently the outlook for flows, continues to be subdued. The flow environment continues to be challenging, and this was reflected in lower sales in the quarter.”
Should You Go All In On Water Like Michael Burry?
Water investments? Michael Burry was one of the first institutional investors to bet against the US subprime mortgage market in the mid-2000s, and today he’s concentrating all of his investment efforts on one commodity: water. Burry’s focus on water has attracted plenty of attention to the commodity in the investment community but trying to profit Read More
The company added that the weak sales came from volatility, as a result of Europe’s debt crisis and financial markets stability.
Man Group Plc (LON:EMG), the world’s largest publicly-traded hedge fund, said in the third quarter, its funds under management increased 14 percent, to $60 billion after it completed the acquisition of rival, FRM Holdings Group. From the deal, Man gained $8.3 billion of funds under management.
With the acquisition, Man Group Plc (LON:EMG) has tried to expand assets within its fund of funds business, which has declined, as investors have taken their money out of the hedge fund over the last few months.
The firm said on Thursday, to increase its profitability, it will slash costs by almost $200 million by the end of next year. This comes in response to the underperformance of its largest hedge fund, AHL, as well as its June appointment of Jonathan Sorrell as its new finance director to help shake things up. He was formerly with Goldman Sachs.
In the third quarter, AHL, which uses algorithms to find profitable futures trades, increased 2.5 percent. For the year-to-date, it has fallen 2 percent, reported Bloomberg.
AHL assets dropped to $16.3 billion in the recent quarter, as compared to the second quarter’s $16.7 billion.
In response to Man Group Plc (LON:EMG)’s third quarter earnings, Citi analysts downgraded the stock to “Neutral”, with a $90 price target.
It cited the following challenges for Man:
Man remains challenged for fund flow momentum. AHL is down 0% to -2% YTD, and at -14% below high water, is well outside performance fee earning territory. We continue to forecast declining management fee revenues, primarily due to our forecast of further falls in Guaranteed Products FUM.
It also changed its EPS forecast:
Following today’s Q3 statement, we amend our EPS forecasts, from 12.7p to 12.1p 2013 and from 14.1p to 11.4p 2014. This reflects lower performance fee EPS expectations longer term. Due to better-than-expected AUM mix (more high-margin guaranteed products), we raise 2012E EPS slightly from 8.7p to 9.0p.
And Citi analysts also addressed Man’s management:
Management is doing the right thing, in our view, focusing on reducing operational scale to better match fund flow levels, rather than AUM.However, we see the near-term outlook now fairly reflected in the share price. This, together with reducing dividend yield support (we forecast 11.0c DPS for 2013,down from 22c 2012E), leads us to move from Buy to Neutral, retaining a High Risk
In addition, during Man Group Plc (LON:EMG)’s analyst conference call, Morgan Stanley analyst, Bruce Hamilton, posed questions to Clark, and one included some color on what sold in the quarter. He asked if there had been any change in demand through it and into October, or is it still really European long-short converts and some credit stuff that’s selling?
ELS credit, MSS continues to [be] attractive products. So no material change is the short answer to Q2 appetite.
Man’s COO, Emmanuel Roman, added:
I think on the product side, I think the way we would like to characterize what we’re trying to do, is there’s a continuum in terms of the fixed income space, which goes from government, to credit, to emerging market bonds, to mortgages. And I think the definition of the bucket is slightly blurred, because everyone is (inaudible). And so, the strategic move we’re trying to achieve, is to pick up a fixed income presence and have products which have the flexibility to move from one asset class to the other. And I think Sudi is the first step into this direction, and this is clearly something we’re trying to build up and make progress on.
In response to the third quarter report, Man Group Plc (LON:EMG)’s shares dropped around 9 percent on Thursday. Year-to-date, shares have declined 33 percent.