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Market Report: Man tumbles on concern over redemptions

The prospect of yet more pain for hedge funds unsettled Man, the London-based fund group, which traded lower as the London market came off the rally path.

Last year, the industry was knocked off keel by the financial storm, with assets under management (AUM) sliding as clients, suddenly strapped for cash and rattled by convulsing markets, liquidated their portfolios. The industry's due diligence processes were also called into question as the Bernard Madoff scandal unfolded, impacting various fund-of-fund businesses.

Last night, Morgan Stanley said the tumult may not have run its course. "[The] hedge fund redemption cycle isn't over," the broker warned, saying that, in Man's case, the problems may be compounded by the exposure of its RMF fund to the Madoff scandal.

"We are bearish on asset retention for [fund-of-fund managers] which were exposed to Madoff, given the potential damage to due diligence credentials and expect this to compound redemption pressures for RMF," the broker said. "We assume that Man Group sees AUM shrink by [about] 75 per cent from [the] March 2008 peak of $33bn [£23bn] at RMF to [about] $9bn by March 2011, implying additional redemptions of 13 per cent in the first quarter of 2009 and further net redemptions of [about] 40 per cent in 2010."

The assessment sent the company's stock down by 6.7 per cent, or 12.5p, to 171.9p.

Overall, the market gave back gains from the session before, with the FTSE 100 falling as low as 3,760.7 before recovering to 3,830, down 92.8, at the close. The FTSE 250 was 74.6 points behind at 6,049.1.

Morning trading was unsettled after disappointment at Lloyds Banking Group's failure to reach an agreement with the UK Treasury on its participation in the Government's asset protection scheme. Investors were expecting details first thing in the morning, when the group, which closed 22.2 per cent, or 16.7p, weaker at 58.3p, posted full-year results.

Sentiment took another hit after the US Commerce Department said the world's largest economy shrank by 6.2 per cent in the final quarter of last year, significantly worse than an initial estimate of a 3.8 per cent contraction. The grim data was supplemented by concern for Citigroup, the banking giant, which was part-nationalised after the US Treasury raised its stake to 36 per cent by converting preferred stock into common equity.

Financial stocks were the biggest losers of the day as the appetite for risk vanished as quickly as it had suddenly materialised in the previous session.

Barclays was down 17.3 per cent, or 19.6p, at 93.4p while HSBC was 6.7 per cent, or 35.7p, down at 491.2p. Traders were busy speculating whether or not the latter would move to bolster its capital position when it posts results next week, with some anticipating a possible rights issue or a dividend cut.

In the insurance sector, Aviva eased to 289p, down 10.6 per cent, or 34.2p, after Morgan Stanley reduced its target price for the stock to 447p from 561p. "Although we expect Aviva to hold the final dividend for 2008, we think management could take the opportunity to signal a change for 2009," the broker said, keeping the stock at "equal-weight".

Legal & General, which was more than 27 per cent ahead on Thursday, was also weak, losing 9.6 per cent, or 4.3p, to 40.2p.

Among miners, Kazakhmys lost 6 per cent, or 16.7p, to 261.5p after Goldman Sachs moved the stock to "neutral" from "buy" in a sector review.

The broker was more positive on Anglo American, which was moved to "buy". The trend in the wider market ensured that the stock drew little immediate benefit from the upgrade, trading down by 25p to 1001p.

Elsewhere, DSG International was almost 8 per cent, or 1.7p, behind at 20.2p following an adverse tax ruling and a bearish analysis by Deutsche Bank, which moved the stock to "sell" on trading and covenant breach concerns. "We consider the equity value of DSG is an option on survival, and so it is very difficult to value," the broker said.

The broker also moved Marks & Spencer, down 1.3 per cent or 3.5p at 261p, to "sell", saying the retailer's promotional response to tougher trading conditions was "inept".

"We believe the shares could track back down to the 2008 low of 200p if trading figures continue to disappoint," Deutsche added.

Among smaller companies, Chromogenex slumped to 0.3p, down almost 66 per cent, or 0.7p, after the laser treatments business said it was seeking shareholder approval to de-list from the Alternative Investment Market, citing its low market capitalisation, the lack of liquidity in its stock and the need to conserve cash.

Neutrahealth surged 1p or 23.5 per cent to 5.2p after the vitamins and supplements group said it had received an unsolicited approach from one of its major shareholders, Elder Pharmaceuticals. The company said the approach may lead to a partial offer that would result in Elder's stake increasing from 21 per cent to 50-60 per cent.

Get midday market updates at independent.co.uk/sharewatch