Man Group looks volatile as performance fees crash

The main virtue for Man Group (EMG) is that the asset manager stays around long enough for its stable of long-only and absolute return funds to ride the investment cycle and deliver high performance fees. Of course, strategic patience can cut both ways and, following a very strong 2022 for its strategies, the results this time had a deflated look as growth shares, cash and simple index tracking reasserted itself.

Still, you take the knocks as they come and, on the evidence of these results, Man Group is still one of the few UK asset managers where investors are happy to subscribe additional funds. Net inflows were $3bn (£2.3bn) during the year, taking total assets under management to a record $167bn. These were also boosted by the acquisition of controlling stakes in Varagon and Asteria. Varagon added $10bn to Man assets, and the stake had a notable effect on Man’s core management fees; these were $963mn for the year compared with $927mn in 2022.

However, core performance fees took the largest tumble, with only $180mn reported in these results, compared with $779mn in 2022, for what was an admittedly exceptional year.

The results were positive enough that management declared a further, though significantly smaller, share buyback of $50mn for the year, which comes on the heels of the $250mn of capital returned via buybacks since 2021 and the over $900mn of buybacks over five years – the total share capital has shrunk by 22 per cent.

Numis analyst David McCann said the unexpected share buyback left a generally neutral view of the results. However, he noted: “Man is not a stock that we would choose to buy and hold over the long term. We perceive the overall earnings to be of relatively low quality, reflecting the percentage of earnings which typically come from volatile performance fees, as well as the flagship funds tending to be more tactical/speculative in nature and therefore flow trends tend to be volatile.”

This seems to neatly sum up the paradox with Man Group: the company is perfectly capable of generating decent returns via its funds, but at a forward price/earnings ratio of 9.3, below the average for the asset management sector, it struggles to convince investors to hold its shares. Until Man can break out of a regular feast/famine cycle, there is no reason to change our view. Hold.

Last IC view: Hold, 219p, 2 Aug 2023