The performance problems at a British hedge fund giant
Man Group made its name with a trend-following investment strategy that was once the envy of the hedge fund world. Nowadays, not so much.
Shares in the world’s largest listed hedge fund are down 8 per cent since the start of the year. And while some traders have been able to make a killing off US President Donald Trump’s tariff war, the yo-yo effect it had on markets was bad news for trend followers.
Man Group’s flagship institutional strategy, AHL Alpha, is down 2.4 per cent this year. (If that sounds bad, consider that it suffered a 9 per cent fall earlier in the year.)
It extends a run of poor performance at the AHL quant unit over the past three years that’s heightened the prospect of investors pulling money out of Man Group’s most lucrative strategies.
The group is at something of a juncture: over the past decade it’s expanded into new areas such as private credit, yet its struggling hedge fund business continues to make up a significant chunk of returns.
The big question for executives is whether they should continue an inevitably costly push into alternative revenue streams or focus on improving hedge fund performance.
But it’s not like staying competitive in the hedge fund world is cheap.
DD wrote on Tuesday about how big multi-manager firms were offering payouts of up to $100mn to lure away star talent. Man Group simply can’t match those kinds of packages, insiders say.
Whatever the solution, one thing seems clear: any comeback will need more investment over several years. And therein lies the rub.
Unlike most of its rivals, Man Group is publicly listed and its shareholders’ interests don’t always align with those of the investors in its funds.
Shareholders have come to enjoy a 7 per cent dividend yield with buybacks on top, but the type of investment that fund investors would value — in talent and trading strategies — could threaten that.
“The problem is if they announce that the dividend yield will be 1 per cent, the share price will crater,” said one former employee. “It’s a terribly difficult situation.”