Ecce Homo

The past few years have a waiting game for Man Group (EMG), with many speculating on how it was going to reverse its underperformance when compared with the asset manager sector. The answer seems to have been to allow the market to do the heavy lifting, with investors fleeing tech funds and pumping money into managers with absolute return strategies. Not only is that a turnaround for Man, but also for the very concept of absolute return, itself, which had suffered many quarters of net withdrawals as investors found better returns elsewhere.

This was confirmed by the net flows by strategy at the asset manager. Man reported net inflows for absolute return (AR) of $4bn (£3.2bn), which was the only material positive across the company and contributed to total positive net flows of $3.2bn for the half. This left Man with total assets under management at 30 Jun of $142bn.

In a sense, the outperformance of absolute return is no real surprise as the strategy is specifically designed to take advantage of market turbulence, so Man’s funds could not have wished for better market conditions than those since December. This was the main reason why core performance fees were $120mn higher in the half at $404mn this time last year.

Man will likely use the excess capital generated by performance fees to buy back its own shares. In the process, it is creating a virtuous circle where performance attracts funds, thus increasing management fees, leading to more buybacks. According to Panmure Gordon analysts, the company’s client profile has become steadily more institutional, with greater retention. The broker forecasts 39.4ȼ EPS for 2022, giving a price/earnings ratio of 7.8. Hold.

Last IC View: Hold, 192p, 28 Jul 2022