Man set to hive off derivatives arm after Refco deal

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The Independent Online

Man Group, the hedge funds manager, may decide to hive off its derivatives brokerage next year, after the £188m purchase last week of assets of the bankrupt US firm Refco.

Stanley Fink, Man's chief executive, made it clear a separation of the brokerage arm - which accounts for 15 per cent of the group - was moving up the agenda.

His comments came as the company raised £125m from shareholders to fund the integration of Refco, in a share placing that was several times oversubscribed. Mr Fink said the brokerage arm's future would be re-examined next year after it had won back Refco's lost clients and achieved the £125m cost savings expected.

He said there were few synergies from having a derivatives brokerage within the wider hedge fund management group, and keeping it would depend on persuading the market to give it the premium rating accorded to Refco before it collapsed.

"If we fail to get a re-rating, then we will consider other strategic options," he said. "We have shown over the years, by selling off our agricultural division, that we are willing to sell off businesses, and if it is of benefit to shareholders then we will do it."

Analysts said a demerger was the most likely way forward, although a trade sale to another player in the highly competitive and testosterone-fuelled world of derivatives broking might be the most lucrative option.

Man raised £125m in a placing priced at 1,700p yesterday morning, and the shares closed up 78p at 1,760p, the FTSE 100's best performer. Mr Fink said Man had decided to tap shareholders for the funds so as not to deplete its war chest for further acquisitions. The UK group moved in after Refco filed for bankruptcy for much of its business on 17 October, in one of the most dramatic corporate collapses. Philip Bennett, Refco's British chief executive, hid $420m (£244m) in loans from the company and faces criminal charges of securities fraud.

Peter Clarke, the finance director, was given the additional title of deputy chief executive yesterday, in recognition of his role in the negotiations to acquire and integrate Refco.

Man posted half-year results ahead of expectations. Pre-tax profit of £576m was an increase of 59 per cent on the six months to 30 September 2004. Performance fees, collected when Man's hedge funds perform ahead of a specified benchmark, rose fivefold to £166m, and the company said it was still winning new investment from institutions and wealthy individuals, despite the slowdown in growth of the hedge fund industry. The company has an estimated $44.7bn under management, it said, compared with $40bn at the end of March.

Mr Fink said: "Clearly the growth of fund inflows will slow. We foresee a lot of consolidation and see ourselves as consolidator."

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