Man Group Falls After Warning That Volatility Hurt Performance

(Bloomberg) -- The hedge fund industry's rebound is on hold after a spike in volatility hurt returns.

“The recent moves in markets have impacted our investment performance in some areas, particularly for our momentum strategies,” Man Group Plc Chief Executive Officer Luke Ellis said after a broadly positive set of earnings for last year. “However, looking forward Man is well positioned.”

The largest publicly-traded hedge fund fell as much as 5.4 percent, the most in almost three weeks, after earlier gains. It was down 2.4 percent in London at 10:01 a.m.

Investors are allocating more money to hedge funds, betting their ability to speculate on market gains and declines can shield them from losses even if the withdrawal of quantitative easing hurts the global economy and stokes volatility. Man Group's performance fees almost tripled last year to $333 million, helping to swell profits, the London-based company said in a statement on Wednesday.

"It was a tough start to the year with fund performance, particularly for AHL, so you may see people pare back their expectations on performance fee gains this year," said Justin Bates, an analyst at Liberum Capital Ltd in London. “Some key funds are down between 5 and 9 percent this month so that's going to act as a drag."

It may take time for Man to recover from these losses, most of which came in a few days at the beginning of February, he said by phone. "But there's no reason to suggest the same couldn't happen again and they will get a bounce back," he said.

New accounting rules on leases will reduce Man Group's surplus regulatory capital by as much as $120 million next year from $460 million at the end of 2017, the firm said in the statement.

Man Group, benefiting from a rebound in the industry, boosted assets under management to a record last year as investors put money into its total-return and computer-driven strategies. Funds overseen by the firm climbed to $109.1 billion from $80.9 billion at the end of 2016 and the company will pay a final dividend of 5.8 cents a share, for a total of 10.8 cents for the year.

Read more about what caused the volatility spike and market sell-off

Funds under management increased by 5.4 percent in the last three months of the year as investors allocated more money to total return strategies.

To contact the reporter on this story: Suzy Waite in London at swaite8@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Jon Menon

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