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Man Group debuts computer-driven bond hedge fund

Date: Tuesday, September 4, 2012
Author: Laurence Fletcher, Reuters

Hedge fund manager Man Group has launched a computer-driven fund that will try to make money trading government bonds despite the ultra-low yields on offer, the latest step by the struggling firm to try and revive its fortunes.

The Nomura Man Systematic Fixed Income fund, which launched in July with $50 million of external investor money, uses algorithms from Man's $16.7 billion flagship fund AHL to help it trade interest rate and bond futures, currencies and interest rate swaps around the world.

The fund will seek to latch onto trends in prices; spot distortions in yield curves and benefit by their reverting to normal; and profit from higher interest rates in emerging market currencies if it judges market conditions favourable.

The launch comes as hedge funds and other investors struggle to get to grips with ultra-low sovereign bond yields and work out whether prices are over-inflated amidst the euro zone debt crisis. On Monday the German two-year yield was minus 0.004 percent.

Man says the new fund, which can bet on both rising and falling prices, will target double-digit returns.

"Yields are also at extremely low levels. If you're (only) long bonds, you certainly know what your upside is," Sandy Rattray, chief investment officer of Man's Systematic Strategies (MSS) unit, which runs $2.2 billion, said in an interview.

Last month AHL said it had built a new computer model to cap its exposure to bond futures for fear of big losses, should the market reverse abruptly.

Rattray, who co-developed the VIX volatility index, also known as the "fear index" which is widely used to measure investors' perception of risk, added that it will benefit from the reduced competition from rival traders such as banks, which have been cutting their proprietary trading units.

"This is an extremely clear example of where banks have reduced risk and funds ought to be stepping in to take risk. VARs (values at risk) from investment banks have come down in fixed income," he said.

Reuters reported in April that Man was planning to launch the fund.

The launch comes as Man, whose share price has dropped by three-quarters since the start of last year on the back of client outflows and poor fund performance, tries to regain investor confidence and improve returns.

In June Man Group dropped its finance director, while in July it announced $100 million of cost cuts, its third wave of savings since a widely criticised purchase of rival GLG in 2010.

Earlier this year Man announced the launch of the Man Commodities fund, also run by MSS, which uses algorithms to trade 25 commodity futures contracts and also allows human intervention.

Rattray said on Monday the Commodities fund, which launched with $50 million in March, had raised "a few million". He said: "The commodity fund has been slightly more slow going - probably because of the timing."

However, the firm's Tail Protect fund, which aims to profit during periods of market turmoil, has raised $700 million and has more than $300 million in investor commitments, Rattray added.