"Black box" fund may not be enough to revive Man |
Date: Tuesday, July 24, 2012
Author: Laurence Fletcher, Reuters
A recent uptick in the performance of its flagship AHL fund may not be enough
of a cure for hedge fund manager Man Group after a sharp fall in assets,
analysts said. The firm, whose shares have lost more than three quarters of their value
since the start of last year as clients withdraw funds, is set to report interim
results for the six months to the end of June on Tuesday. Last month Man signalled a fightback when it replaced finance director Kevin
Hayes with Jonathan Sorrell, son of WPP chief Martin Sorrell, a move that has
raised hopes of further cost cuts. Man's $19.5 billion "black box", computer-driven, fund AHL, meanwhile, has
profited from short bets on oil and metals and long positions in U.S. Treasuries
and UK gilts, gaining 4.5 percent between May 21 and July 16, a 1.1 percent rise
for the year. "A move in AHL is helpful, but it does need to do a bit more before any
analysts start to revise their forecasts up," Singer analyst Steve Keeling, who
rates the shares a buy, told Reuters. "Man Group is a relatively binary play. If AHL was performing better then the
share price wouldn't be 60 pence or so. What's in their control is the cost
base. I'd like to see the company tackling the cost base with a bit more
vigour." Analysts at Citi have called on Sorrell to bring forward $25 million of cost
cuts from next year to this year, part of the $75 million extra cuts announced
in January. Despite widespread criticism of its 2010 acquisition of GLG for $1.6 billion,
Man in May bought fund firm FRM to try to reduce dependence on AHL, in a deal
that has been much better received. Analysts nevertheless remain divided on a stock that has proved volatile and
hard for the market to value. While assets trickle into the $2 trillion hedge fund industry, Man has seen a
client exodus for the past three quarters, while assets have also fallen as it
cuts borrowings in its guaranteed products division on the back of poor
performance. Singer expects Man to report $1.6 billion of net outflows during the three
months to end-June, slicing assets to $52.2 billion from $59 billion at
end-March, while RBC Capital Markets expects assets to fall to $53.4 billion
after $1.5 billion of net withdrawals. "In our opinion, Man is currently trading at a level only slightly above its
liquidation level, which we believe is 60 pence," said RBC analyst Peter
Lenardos, who rates the shares "sector perform" with above average risk, in a
recent note. Man shares closed 0.4 percent lower at 69.15 pence on Monday. Last month the
firm was demoted from the FTSE 100.
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