Man Group's Shares Fall Most in 8 Months on Profit Decline

(Bloomberg) -- Man Group Plc, the world's largest publicly traded hedge fund firm, said adjusted pretax profit fell 49 percent in 2016 on lower performance fees. The shares dropped the most in eight months before recovering most of their decline.

Earnings fell to $205 million from $400 million a year earlier as pretax profits from net performance fees fell to $27 million from $206 million, the London-based company said in a statement on Wednesday. Assets under management rose to a record $80.9 billion as investors poured money into its computer-driven hedge funds. That still missed the $82 billion estimate of nine analysts surveyed by Bloomberg.

Man Group shares fell as much as 10 percent, the biggest decline since the Brexit vote, and were down 3.7 percent at 141 pence at 12:01 p.m in London. They had been up 24 percent this year before the results were released.

“Given the mixed results and strong share price, investors could be tempted to take profits at current levels, which given the uncertain outlook, could be viewed as a wise strategy in the near-term,” Peter Lenardos, an analyst at RBC Capital Markets, said in a note to clients.

The hedge-fund industry struggled to make money last year due to the turmoil in global markets, while more straightforward investments such as stocks and bonds were boosted by cheap central-bank cash and speculation President Donald Trump will trigger an upsurge in the U.S. economy. That leaves companies like Man Group struggling to justify their often high fees.

“We have started the year with a good pipeline of interest from clients and encouraging performance across most of our strategies as the new global political environment has created many alpha opportunities,” Chief Executive Officer Luke Ellis said in the earnings statement. “It remains early days in an uncertain market.”

Man Misunderstood?

Man Group benefited from investors' interest in quantitative hedge funds, even as the industry suffered outflows. The money manager raised $1.9 billion during the year primarily because of inflows into quant funds, where assets under management surged 20 percent.

Investors may have misunderstood Man Group's results, which were “strong and the outlook cautiously positive with further cost savings to come,” said Justin Bates, an analyst at Liberum Capital Ltd. in London.

CEO Ellis said in an analyst call that his firm had added $500 million in new capacity to its AHL Evolution fund. Man Group's long-only funds had withdrawals in the fourth quarter, leading to a net $400 million in outflows for the firm in the period.

“There remain many short- to medium-term uncertainties at Man, including inconsistent performance and performance fees, volatile flows and significant fee margin pressure,” David McCann, an analyst at Numis Securities Ltd., said in a note to clients. “The short- to medium-term outlook for the current business is declining to flat, in terms of the direction of management fee profits.”

--With assistance from Sofia Horta e Costa

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

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