Man shares plummet as global turmoil hits profits

Assets under management fall from $70bn to $61bn
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The Independent Online

The hedge fund Man Group was the biggest faller in the FTSE 100 yesterday after it revealed global financial turmoil has knocked nearly a quarter off interim profits and caused assets under management to decline by $6.6bn (£4.2bn) since September as the hedge fund industry continues to suffer.

Shares of the biggest publicly traded hedge fund manager plunged 31.2 per cent after it said profit from continuing operations and funds under management fell more than analysts estimated.

Assets under management, which stood at $70.3bn as of 30 March, fell to $61bn at the beginning of this month, with almost 10 per cent of the drop occurring since 30 September.

"The period under review witnessed unprecedented levels of turmoil in financial markets," said Man's chief executive, Peter Clarke. He said the group's interim results were "robust" in spite of the extreme volatility.

The hedge fund industry has been one of the hardest-hit in the recent financial meltdown, and many City insiders expect it to be the next group of financial services companies to get caught in the eye of the storm which has so far most badly affected investment banks and buyout firms.

"Earnings estimates will follow the collapse in funds down, and we worry that the whole hedge fund industry will continue to be under significant pressure as redemptions accelerate and fees decline," analysts at Killik & Co said. "Man is a well-run company, but we find it hard to see how it can avoid this industry-wide pressure that looks set to prevail over the coming year."

Hedge funds in Europe are still expected to lose a sizeable proportion of their assets as markets drop and clients withdraw money. They also traditionally borrow heavily to boost their returns, and with banks becoming more circumspect about lending and sometimes even calling in loans, many hedge funds have had to close out trading positions at bad times because they had to repay the cash they were using.

With several hedge funds already in trouble talk in Mayfair, where many of them are based, it is about which big name will go out of business first.

Because of the high leverage used on trades and the volatile bets hedge funds take in the usual course of business, the industry has developed a boom-or-bust image that has seen its successful executives earn huge amounts of money in the benign markets of recent years. However, it has now entered the bust side of that cycle.

Man Group admitted that markets are so bad it is inevitable some hedge funds will not survive the current turmoil."It is clear that the industry will see a significant reduction in both the number of participants and the level of funds under management in the near term," Man said.

As much as a third of hedge funds may close in the next two years, according to a 29 September report by Zurich-based analysts at Credit Suisse.

Man said that the fall in assets under management was also partly related to currency fluctuations. The company reports in US dollars but earns money in different currencies, so the recent rise in the dollar has led to a fall in stated numbers. The company's MGS business, which allocates investment to other hedge funds, reduced its holdings to cut down on debt, further contributing to the fall in Man Group's assets under management.

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