Man Shuts Vision Fund in Overhaul of Guaranteed Products

Date: Wednesday, August 28, 2013
Author: Jesse Westbrook, Bloomberg

Man Group Plc (EMG), the world’s biggest publicly traded hedge-fund manager, is shutting a range of products that aimed to protect clients from losses after they failed to meet performance targets.

The company decided this month to shut Man Vision Ltd., a $40 million pool that sought to generate returns of more than 10 percent annually, according to an Aug. 12 letter sent to clients and obtained by Bloomberg News. Man Group is also closing similar offerings that, like Vision, were tied to the performance of AHL Diversified, the firm’s biggest hedge fund, said a person with knowledge of the moves who asked not to be identified because they aren’t public.

AHL, a $14 billion hedge fund that uses computer algorithms to try to profit from trends in asset prices, has been hurt after the U.S. Federal Reserve roiled markets earlier this year by indicating that it may taper its bond purchases. Guaranteed products based on AHL and other hedge funds are Man Group’s most profitable offerings, because they levy fees that can be more than twice what the industry typically charges.

“They definitely have the highest margins and that’s due to large management fees and because AHL is run by a computer that’s not demanding a bonus at the end of the year,” said David McCann, an analyst at Numis Securities Ltd. in London who has a sell rating on Man Group. Still, “no one has wanted to buy these products in the last three to four years” because the returns have been lackluster.

Vision, which totaled about $160 million a year ago, fell about 5.6 percent in the first half of 2013, according to data compiled by Bloomberg. The fund has lost about 12 percent since it started trading in July 2008.

Bond Offering

Vision promised clients that bought a bond issued by Man Group and held it until maturity in 2020 that they won’t lose their initial investment. Credit Suisse Group AG (CSGN) provided a guarantee to protect investors against declines in the bonds.

The pool “no longer has the potential to achieve its performance objectives,” Man Group said in the letter, which was obtained by Bloomberg News. David Waller, a spokesman for the London-based company, declined to comment on the fund.

Man Group said in a July 2012 statement that it planned to reduce its reliance on high-margin guaranteed products, because clients weren’t buying them.

Assets under management at the guaranteed-products division have declined 64 percent over the past two years to $4.7 billion, less than a 10th of the company’s $52 billion of assets under management.

Fees Charged

Man Group sold Vision as a product that could take advantage of directional market moves through AHL and also developing global themes, such as the growth of emerging economies and climate change, by selecting the best outside hedge funds. The firm planned to boost returns through leverage, or borrowed money.

Vision charged bondholders an annual 3 percent fee for investing in AHL and an additional 1.5 percent fee for investing in the funds-of-funds, according to the prospectus. Zurich-based Credit Suisse also received a 1 percent annual fee for guaranteeing the bonds and for entering into a swap with Man Group, the prospectus shows. Most hedge funds charge clients a 2 percent management fee to oversee assets.

Man Group plans to pull all of Vision’s investments in AHL and other hedge funds by Sept. 1, moving them into cash and bonds, according to the client letter. Clients can hold their investment until maturity, redeem and lose the guarantee protecting their initial investment, or move their money to another Man Group product at no charge, according to the firm.