Hedge fund Man Group has become the latest company to suffer at the hands of the financial markets, with clients withdrawing cash from its funds at the quickest pace since early 2009.
The admission along with a dip in the amount of funds managed by the firm caused shares in the world's largest listed hedge fund to slump by almost 25% Monday, as analysts cut estimates and target prices for the company's shares.
Man Group says clients pulled out a net $2.6bn (£1.6bn) in the three months to end-September. Total outflows amounted to $7.1bn, tempered by sales of $4.5bn, making the latest quarter the worst for the group since the collapse of Lehman Brothers. A large chunk of the redemptions came from funds run by GLG, the hedge fund group that Man acquired a year ago but whose performance has dipped. Out of 20 GLG funds, just five are showing profits for the year to date.
In a statement, Man chief executive Peter Clarke, said: "The extreme volatility of markets in recent months has created challenging performance conditions across asset classes. This has tested investor appetite for risk… we are assuming that investor appetite will be generally suppressed for the remainder of the year".
Man said that much of the redemptions had come from its most liquid funds, which allow clients to cash-in investments in the shortest time period. Following the start of the financial crisis in 2008, when some hedge funds implemented so-called "gates" which locked clients into funds, investor appetite has been for instant or near instant access to cash. There are some in the industry, however, who argue this trend has impacted hedge fund performance, as often it forces traders to be sellers of assets at poor prices.
The redemptions, and the state of the financial markets, caused total assets under management to slip from $71bn at the end of June to $65bn.
One hedge fund investor said: "Man Group is absolutely massive. But is it going to get much bigger? Probably not. The chances are that it has ex-growth and it is much more likely that we will see a semi-cyclical business in terms of assets under management."
Man shares fell 59.6p to 180p, their lowest level since early 2009.
Credit Suisse said a combination of lower assets under management and performance fees had prompted it to cut its pretax profit forecasts by 27% to $332m for the nine months to the end of this year. However, the broker retained its "outperform" rating on the shares because of the recent performance of Man's star AHL fund, which the broker said should help attract funds in the medium term.
Man Group has been well supported during 2011 by City analyst cheerleaders who have advised their clients to buy its shares. Among those who remain positive despite the setback is broker Killik & Co, which retained its "buy" stance while admitting that the trading update was "clearly disappointing".
In a note to clients, the broker said: "Although part of this is profit taking following a strong run-up in the shares over the past six weeks, it is also a reflection of weak trading. However, we are maintaining our positive stance."
guardian.co.uk © Guardian News and Media Limited 2010
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