Neptune buys Man Group, sees M&A among fund firms

Date: Friday, July 24, 2009
Author: Laurence Fletcher, Reuters

Equity investors are too negative about the hedge fund industry, says Neptune's Jeremy Smith, who has recently bought shares in Man Group (EMG.L) and expects more consolidation among traditional fund firms.

Smith, who manages the 42 million-pound Neptune UK Equity fund, said that while performance of Man's flagship AHL managed futures strategy has been poor this year, shares in the world's biggest listed hedge fund firm still look cheap.

"A lot of fund managers have written off the hedge fund industry but from anecdotal evidence it seems a lot of money is being raised," he said at a briefing with reporters late on Wednesday.

"Valuations (in the sector) are extremely low."

Man's shares have underperformed the FTSE All Share index .FTAS by 44 percent over the past year as outflows have hit the firm's assets, on which it earns fees, although this month it told Reuters it expects to return to overall net client inflows in its second half.

Smith also said he owns shares in F&C Asset Management (FCAM.L) because of the possibility of further merger activity following majority shareholder Friends Provident's (FP.L) move to demerge the fund unit.

He said Robin Geffen, Neptune's managing director, owns shares in F&C and Henderson (HGGH.L) in his portfolio.

"There are lots of rumours Aberdeen is not finished. It's like it's on a treadmill that's getting faster and it's having to do bigger deals," he said.

Many observers believe the $13.5 billion (8 billion pounds) BlackRock deal to buy BGI was just the start of major M&A activity in the sector. Aberdeen has stated its intention to participate, and is targeting the U.S.

NATIONAL CHAMPIONS

Elsewhere, Smith said he has recently bought shares in engineer GKN (GKN.L) because he believes the troubles other car part suppliers have faced will let it strengthen market share.

"There have been more bankruptcies among parts suppliers than manufacturers, which tend to be national champions and which tend to be bailed out," he said.

"GKN has recapitalised and is in a much stronger position to go out and take market share and benefit from a recovery in volumes."

Over the three years to end-June, Smith's Neptune UK Equity fund has fallen 7.2 percent, beating an 18.1 percent drop in the FTSE All Share index and outperforming its peers in the Lipper Global benchmark for UK equity funds by 11.42 percent, according to data from Thomson Reuters fund research firm Lipper.

Smith's fund has a top Lipper Leader rating of five for overall consistent returns, total returns and preservation, but scores one for overall expense. For more on Lipper Leader ratings visit www.lipperweb.com.