Quant Funds Lift Man Group Despite $1.1 Billion of Withdrawals

(Bloomberg) --

Man Group Plc’s computer-driven funds are boosting earnings prospects for the world’s biggest publicly traded hedge fund even as the firm reported its first outflows for a six-month period since 2015.

About 90% of Man AHL strategies, which use complex algorithms to trade, were at the “high water mark,” a level that allows funds to charge performance fee, according to a company statement on Wednesday. Man Group shares rose as much as 4.6% in London trading.

“We think there is potential for Man Group to report performance fees well in excess of what is currently baked into consensus forecasts,” according to Paul McGinnis, an analyst at Shore Capital, referring to the quant funds.

Investors pulled $1.1 billion in the first half of the year, more than the average forecast of $1 billion of outflows, according to a company-compiled analyst consensus. Man Group’s assets under management rose to $114.4 billion from $112.3 billion at the end of March, driven by market performance, the company said in the statement.

Until this year, Man Group, best known for these tech-centric investment strategies, had escaped the investor backlash against fund managers. The firm took in almost $25 billion since the start of 2015 thanks to its diversified range of funds and acquisition of competitors such as Numeric and Silvermine.

The first-half withdrawals were mainly concentrated in its long-only money pools, whereas the firm’s computer-driven funds performed well. It’s main $6.1 billion AHL Dimension fund was up 5.2%, while its AHL Diversified Fund surged 8.2%, up from a gain of 2.9% and a loss of 3.5% respectively in 2018. Competitors gained an average of about 4% during the period, up from losses of 4% last year, according to data from Eurekahedge.

Profit Up

Adjusted pretax profit rose 3% to $157 million from a year earlier. That beat the $138 million average analyst estimate compiled by the company.

“We enter the second half of 2019 with good performance fee earning potential with 90% of Man AHL strategies at high water mark,” Chief Executive Luke Ellis said in the statement. “The diversified nature of our business means that we remain well positioned to navigate the current economic environment.”

Investors pulled $44.6 billion from hedge funds in the first half of the year, already exceeding total outflows in all of 2018, according to data compiled by eVestment. Funds betting on stocks as well as broad macro trends have suffered the most.

Man Group was founded in 1783 by James Man as a barrel maker-cum-brokerage on Harp Lane, about 500 meters from its current office along the Thames in London. Over the next two centuries, it supplied rum to the Royal Navy and traded commodities such as coffee and sugar before eventually focusing exclusively on financial services. In 1989, Man Group began acquiring a computer-driven trading shop called AHL and later acquired its discretionary investment unit GLG.

Under Ellis, who took over as chief executive in 2016, the firm has added more than $30 billion in assets, accelerated the use of artificial intelligence to make money and expanded investments into real estate to shield the firm from volatile flows that have troubled the $3 trillion industry because of years of mediocre returns.

To contact the reporter on this story: Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, James Hertling

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