Sept. 28 (Bloomberg) -- Man Group Plc fell the most in three years in London trading after the world’s biggest hedge fund said its assets under management will decline by $6 billion amid “suppressed” demand for investment products.
The stock dropped 25 percent to 180 pence, the most since Nov. 6, 2008. Assets will fall 8.5 percent to $65 billion through September from $71 billion at the end of June, the London-based company said in a statement today. Man Group had outflows of $2.6 billion from its funds in the second quarter, with investors pulling money from strategies betting that stocks will rise and funds focused on emerging markets.
“The extreme volatility of markets in recent months has created challenging performance conditions across asset classes,” Man Group Chief Executive Officer Peter Clarke said in the statement. “We are assuming that investor appetite will remain suppressed for the remainder of the year,” he said.
Hedge funds lost 2.5 percent on average in August, the worst month for the private investment pools since May 2010, according to Chicago-based Hedge Fund Research Inc. The declines came amid a market sell-off that has driven the MSCI World Index down 13 percent since the end of July as investors become increasingly concerned that Europe won’t resolve its debt crisis and the U.S. may slip back into recession.
Clarke, on a conference call with reporters today, said the company hopes demand for hedge funds and other investment products “improves once there is clarity in markets, particularly in Europe.”
For the year, the stock is down 39 percent, giving the company a market value of 3.4 billion pounds ($5.3 billion).
Sales will likely decline 50 percent in the second quarter to $4.5 billion, the company said in the statement. Man Group estimated redemptions jumped 34 percent to $7.1 billion. There were a “couple” of September redemptions in which single investors pulled “a few hundred million,” Clarke said on the call with reporters.
Man Group’s assets under management were also hurt in the second quarter by a strengthening U.S. dollar. Changes in exchange rates are expected to account for $1.9 billion of the decline in assets in the quarter, the company said.
Profit to Fall
Profit before tax for the six months ended Sept. 30 will likely fall to $185 million from $227 million a year earlier. Management and performance fees declined 8.4 percent to $230 million from the year earlier period.
The decline in assets was a “disappointment” that will affect expectations for future earnings from management fees, Citigroup Inc. analysts Haley Tam and Nese Guner wrote in a report sent to clients today.
Tam and Guner, who have a “buy” rating on Man Group, said the consensus estimate for full-year 2012 earnings will likely be reduced between 3 percent and 5 percent. The median earnings estimate for 2012 is 38 cents a share, according to 12 analysts surveyed by Bloomberg.
Bank of America Corp. analysts led by Philip Middleton expected Man Group assets under management to increase to $71.9 billion. Middleton and his team expected sales of $4.6 billion and redemptions of $5.7 billion, triggering outflows of $1.1 billion from Man Group’s funds, according to a note sent to clients on Sept. 16.
Man Group has been adding products and trying to boost sales in Asia and the U.S. since last October’s purchase of GLG Partners LP for $1.6 billion. The company this month hired its first Asia-based portfolio manager focused on stocks as it moves to expand its investments in the region.
Man Group bought London-based GLG to reduce its reliance on AHL Diversified Plc, a computer-driven hedge fund that accounts for about one-third of the firm’s assets under management.
GLG’s hedge funds, overseen by individual portfolio managers investing in stocks, bonds and currencies, will lose about $1.1 billion in the second quarter, Man Group said in the statement. The GLG European Opportunity Fund declined 13.5 percent for the two months ended in August and the GLG Emerging Markets Fund slumped 13.3 percent.
GLG’s so-called long-only funds, which don’t make bets that stocks will decline, lost $1.9 billion in the second quarter, according to the company’s statement.
AHL, which relies on algorithms to spot profitable trades in more than 150 futures markets, has gained 9.7 percent since the end of June, according to data compiled by Bloomberg. The hedge fund has profited from investments in bonds, interest rates and metals, Man Group said in the statement.
AHL has risen 0.5 percent for all of 2011. It gained 17.2 percent last year and declined 16.7 percent in 2009.
--Editors: Steve Bailey, Jon Menon.
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