It just might be the world's largest hedge fund—and smart management and a diversified business model indicate continued muscle
It's hard to think of any better place to place your bets these days than in hedge funds—the 21st century's license to print money. So it's no surprise that Man Group, ranked No. 9 on the BusinessWeek Europe 50 list, continues to rake it in and may now be the world's largest hedge fund.
The company, which grew out of an 18th century commodity business and is headquartered on Sugar Quay on the Thames in London, is still excelling at attracting new money for its stable of hedge-fund products. On Mar. 31, at the end of its financial year, it estimated its total funds under management at $62 billion—a 24% increase over a year earlier. Pretax profits for fiscal 2006 were $1.3 billion, up 51%, on revenues of $3.49 billion, an increase of 42%.
Recent months have witnessed two landmarks for Man Group. In March, Stanley Fink, the hedge-fund visionary who had been chief executive officer since 2000 and pivotal to the company since he joined in the early '90s, stepped aside. He will be replaced by Deputy CEO Peter Clarke, 47, a long time collaborator. Fink will stay on as Deputy Chairman.
Man is also doing something the markets have wanted for a long time: It's splitting off its Man Financial futures-brokerage business, which accounts for around 15% of net income, from the far more important hedge-fund unit, called Man Investments. An initial public offering of a majority interest in Man Investments, which will be renamed MF Global on the New York Stock Exchange, is being planned for later this year. Kevin Davis, who currently runs the Chicago-based brokerage business, will be CEO.
Turning Man into a pure hedge fund manager may stoke up perennial market talk that the firm is an acquisition target for one of the big global banks, such as Citigroup (C). Man, which has been at the game for decades, now has four legs to its hedge funds business, so weak performance at one unit can be offset by strong showings among the others.
For instance, the business that originally established Man as a powerhouse—a computer-driven futures trading business called AHL—did relatively poorly last year, leading to an estimated 15% drop in overall performance fees, to $340 million. But management fees grew 30%, to an estimated $910 million.
Line of Succession
Along with AHL, there's RMF, a Zurich-based fund-of-funds business targeted at pension funds and other institutions. RMF is Man's largest unit, with more than $20 billion in funds (AHL is second, with about $18 billion). Man also has Glenwood, a Chicago-based fund-of-funds boutique targeted more at retail investors. Finally, Man Global Strategies has agreements with about 45 fund managers, who can be called on to fill out the hedge fund packages Man sells to clients.
The strongest sales areas are continental Europe, Man's original stronghold, and Asia, where it has seen the most growth. Man is also pushing to increase institutional sales in the U.S.
Man will have its ups and downs, but with Clarke succeeding Fink, the company will maintain continuity. It will be tough to knock this juggernaut far off track.