Man Group: long story falls short for UK hedge fund with go-go algos

Investors will not forget the first half of 2022 in a hurry. It was the toughest six-month period for a traditional 60-40 portfolio for 90 years. But volatile markets suit computer-driven hedge funds. On Tuesday, London-listed Man Group, which makes heavy use of trend-detecting algos, reported record performance fees — up 42 per cent compared with the first half of 2021.

A pity, then, that its performance was dragged down by the long-only funds — about a third of assets under management. They declined in value by 12.5 per cent. Overall assets under management fell 4 per cent in the half year, as adverse currency movements compounded the investment losses.

Moreover, there has been a pick-up in redemptions since May. Net client inflows amounted to just $100mn in the quarter to June. The explanation, Man says, was that clients needed to raise cash to meet demands elsewhere in their portfolios. They left the door ajar on their way out: 90 per cent of the redemptions were partial.

Maintaining AUM matters for management fees, which have grown at a steady 8 per cent a year over the past five years. But performance fees are perforce more variable. They have averaged 20 per cent over the past 10 years, but have sometimes dipped as low as 5 per cent, according to Panmure Gordon.

Man’s policy is to buy back shares with capital generated from performance fees. It has returned almost half of its market capitalisation in the past six years. Volatility of earnings explains why Man’s shares trade on a lowly price/earnings ratio of 9, a third less than long-fund specialist Schroders. That is despite a share price rise of more than a quarter in the past year

Investors are taking a cautious view of hedge funds. Last year’s net inflows have partly reversed in 2022. But the first half of this year demonstrated the value of liquid alternatives. Another bout of market turbulence could again play to Man Group’s strengths.