Man Group Plc (EMG) surged as much as 12 percent in London trading after the world’s biggest publicly traded hedge-fund manager doubled its planned cost cuts and said it would rely less on products that are expensive to sell.
Man Group plans to reduce expenses by $100 million over the next 18 months, adding to $95 million of cuts announced in March, the London-based company said in a statement today. Man Group also plans to sell fewer so-called guaranteed products, which require the company to pay high fees to private banks and have drawn subdued demand from customers.
The fund manager is revamping its sales strategy after naming former Goldman Sachs Group Inc. executive Jonathan Sorrell as finance director last month. Man Group has lost 4 billion pounds ($6.2 billion) of market value since the end of 2010 after analysts cut their profit estimates amid losses at the company’s flagship AHL hedge fund and client withdrawals.
“The one thing that is very much in control at Man Group is their cost base, not the month-to-month performance of AHL,” said Singer Capital Markets Ltd. analyst Steven Keeling, who has a buy rating on the stock. “With a fresh pair of eyes through a new finance director, they appear to be taking a sensible approach.”
The shares climbed 5.8 pence, or 8.4 percent, to 74.95 pence at 11:41 a.m. in London, giving Man Group a market value of 1.4 billion pounds ($2.2 billion). Before today, the shares had fallen 72 percent over the past year.
“We have made progress in the last six months to address the costs across our business,” Chief Executive Officer Peter Clarke said in the statement. “The changes we have announced today, together with progress we have already made, position us well to protect and rebuild shareholder value.”
Clients pulled a net $2.4 billion from Man Group’s investment funds in the first half of 2012, according to today’s statement. AHL, which relies on computer algorithms to spot profitable trades, had the most outflows, at $1.8 billion.
AHL has been hurt by Europe’s debt crisis, as rivals that also rely on computer models have had better responses to the political decisions that spurred rapid changes in currency and commodity prices.
“It’s not as easy as it used to be,” said RBC Capital Markets analyst Peter Lenardos, who has a sector perform rating on Man Group. “There is increased competition, there are no trends, there is quantitative easing and there is political intervention.”
Customers redeemed $9.6 billion from Man Group’s investment funds in the half, compared with $7.2 billion of sales. Assets under management fell to $52.7 billion from $59 billion at the end of March. The outflows pushed assets under management lower than Lenardos’s $53.4 billion estimate and the $52.8 billion forecast by Societe Generale SA analyst Michael Sanderson.
Clarke, speaking on a conference call with reporters, said Man Group would achieve the $100 million of cost cuts by eliminating jobs, cutting back on business in certain countries and moving away from guaranteed products tied to AHL.
Guaranteed products are so named because Man ensures clients will get back their principal. The products also lock clients in, charging penalties for redeeming in the first six years of the investment.
Man Group will try to sell more open-ended products tied to GLG Partners hedge funds, which allow clients to invest and withdraw money at regular intervals, Clarke said.
The company may be signaling that it plans to discontinue the guaranteed products business eventually, according to Singer Capital’s Keeling.
Man Group announced a pretax loss of $164 million for the first six months of the year on writedowns for its GLG Partners Inc. and fund-of-funds units.
The company is writing down GLG by $91 million after buying the hedge fund manager in 2010 for $1.6 billion to lessen its dependence on AHL’s computer models. The fund-of-funds unit, known as Man Group’s multi-manager business, had a writedown of $142 million.
In May, Man Group added to its fund-of-funds business by buying London-based FRM Holdings Ltd., which managed $8 billion. While the company will pursue further acquisitions that add to existing businesses, investors shouldn’t expect anything “big,” Clarke said.
AHL, which managed $19.5 billion at the end of March, declined 4.4 percent in the first six months of the year, according to data compiled by Bloomberg. AHL has performed better this month, rising 4.3 percent through July 19, helped by the euro’s decline against the U.S. dollar.
The company announced last month that Sorrell would replace Kevin Hayes. Sorrell joined Man Group as head of strategy in August 2011 from Goldman Sachs. His father is Martin Sorrell, CEO of WPP Plc, the world’s largest advertising company.
Man Group, which was removed from the FTSE 100 Index of the U.K.’s biggest companies in June, has tried to improve AHL by slowing the speed of trades, increasing the assets it buys and sells, and hiring additional scientists to oversee the program.
The company remains under pressure because clients continue to pull money, investment performance may not improve and Man continues to use its “weakening” capital base to pay a “generous” annual dividend of 22 cents a share, according to JPMorgan Chase & Co. analyst Rae Maile.
“The bulls may enjoy the day, but the bears will not have been silenced by this set of results,” Maile, who has a neutral rating on the shares, wrote in a note to clients.
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