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Man Group's Annual Profit Rises 10%; Stock Advances

Date: Thursday, May 26, 2005
Author: David Clarke- Bloomberg

May 26 (Bloomberg) -- Man Group Plc, the world's largest hedge fund manager, said annual profit rose 10 percent as it made more money from individual investors who pay higher fees and assets increased to $43 billion.

Shares of London-based Man Group advanced as much as 6.2 percent, the biggest gain in 10 months, as the firm's report calmed some of the concerns about hedge fund losses and redemptions. Chief Executive Officer Stanley Fink said in an interview today that hedge funds are having a ``poor year'' and the company continues to attract investors, with more than $435 million going to a new fund raised in March and April.

``Man Group acts as a pretty good bellwether for the industry as a whole and there doesn't appear to be any major disaster,'' said Ian Henderson, manager of the 220 million-pound ($401 million) JPMorgan European Financials Fund, which holds 50,000 shares of Man Group.

Net income climbed to a record $608 million, or $1.81 a share, in the year ended March 31 from $552 million, or $1.41. It's the first time the company has reported full-year earnings in dollars. The increase, the smallest since 2000, beat forecasts from three of five analysts surveyed by Bloomberg.

Fink, 47, said half of the company's $12.1 billion of gross sales in fiscal 2005 came from individual investors who on average pay 2 percentage points more in fees than institutions. Overall, revenue from managing money for clients rose 34 percent to $614 million in the 12-month period.

Performance Woes

Eleven of Man Group's largest funds fell by an average 0.95 percent during the past year. ``In the long run, we understand that we live or die on our performance,'' Fink told analysts on a conference call.

The company's assets advanced 12 percent in fiscal 2005, trailing the industry's 16 percent growth, as total worldwide hedge fund assets climbed above $1 trillion for the first time, according to Chicago-based Hedge Fund Research Inc.

``The company isn't growing as quickly as in previous years, but one year of things not being good doesn't suggest it's the end,'' said Andy Strathdee, a fund manager at Edinburgh-based Baillie Gifford & Co., which oversees about $59 billion and owns shares of Man Group. ``The numbers confirm the market was being too negative on the stock.''

The firm's flagship $1.8 billion AHL Diversified fund, which uses computers to invest in the futures markets, fell 2.3 percent in April, after declining 1.2 percent in the prior 12 months, according to data from Man Group. By contrast, the average hedge fund rose 7 percent in the year ended March 31, according to the Credit Suisse First Boston/Tremont Index.

Revenue, Inflows

Man Group's performance fees fell 50 percent to $119 million in fiscal 2005, the company said. Analysts had estimated performance fees of about $81 million. Hedge funds charge higher fees as the returns they generate increase.

The performance fees were higher than expected, said Credit Suisse First Boston analyst Rupak Ghose, who raised his fiscal 2006 earnings forecast today.

Man Group's funds attracted a net $4.5 billion in the 12 months ended March 31, down from $7.3 billion in fiscal 2004. Fink said part of the decline occurred after Man Group sold a business with $1 billion of assets and $3 billion of outflows were tied to a contract that ended as expected.

``The markets are relieved the redemptions are lower than what were expected,'' said Martin Cross, an analyst at Teather & Greenwood in London, who has a ``neutral'' recommendation on the stock.

Hedge funds are loosely regulated investment portfolios designed for wealthy investors and institutions that bet on falling as well as rising market prices.

Man Group is one of only two hedge fund managers that's publicly traded, giving investors a rare insight into the industry. The other is London-based RAB Capital Plc, which oversees $1.8 billion.

Fund Closures?

Shares of Man Group were up 70 pence, or 5.7 percent, at 1,293 pence at 11:45 a.m. in London, the biggest gain since July 7. Four of the seven analysts tracked by Bloomberg who cover Man Group recommend investors buy the stock.

Man Group dropped 20 percent during the past 12 months, compared with the 13 percent advance of the U.K.'s benchmark FTSE 100 Index. The stock's decline steepened after Standard & Poor's cut the credit ratings of U.S. automaker General Motors Corp. to junk, triggering concern about hedge fund losses.

The next two years will see as many as 1,600 of the existing 8,000 hedge funds either fail or close after returning money to investors, according to a report last week by the Centre for Economics and Business Research in London.

``Clearly the number of hedge funds has proliferated and when it gets excessive there will be a cull and some will go to the wall,'' said Chris White, who oversees 1.5 billion pounds at London-based Threadneedle Investments, which sold its shares of Man Group during the past two months.

Sugar Broker

Man Group traces its roots to James Man, who founded the company in 1783 as a sugar broker that won an exclusive contract to provide sailors in the Royal Navy with rum. The company then grew into one of the world's largest sugar and cocoa traders. Man Group got into hedge funds and futures broking through its commodities trading business.

Following is the performance of Man Group's biggest funds in the 12 months ended March 31. The figures are from the company:

T* Man-Glenwood Multi-Strategy Fund Ltd. +0.7% Man AHL Diversified Plc -1.2% Man-Arbitrage Strategies +2.7% Man AP Unison Series 1 Ltd. -0.8% Man IP 220 Series 4 Ltd. -3.9% Man Global Strategies Diversified Ltd. -1.0% AHL Diversified Futures Ltd. -1.2% Man Multi-Strategy Series 6 Ltd. +1.3% Man Multi-Strategy Series 3 Ltd. -2.2% Man IP 220 Plus Series 3 Ltd. -4.1% Man RMF Multi-Style Ltd. -0.7%

To contact the reporter for this story: David Clarke in Edinburgh at dclarke3@bloomberg.net; Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net.