Man Group is not delivering

Given Man’s apparent embrace of algorithm-led trading strategies, overheads also seem high. Speaking to the Financial Times this week, chief executive Luke Ellis railed against the culture – apparently in its demise – of star hedge fund managers in it only for the money. Whether this was a not-so-subtle attempt to rein in any Man rainmakers, time will only tell. But on current evidence, the firm’s wage bill is high. In the six months to June, after generating $382m in net management fee revenue and a further $142m in performance fees, staff costs came to $243m; a compensation ratio of 46 per cent. In 2018, it was 48 per cent. To be fair, the sector is known for paying up for talent with the first-half compensation ratio sitting at 44 per cent at Schroders (SDR) – a manager with five times the assets, also managed largely on behalf of institutional clients.

Comparisons with other asset managers are inexact, and possibly unfair. After all, quantitative analysts don’t come cheap, which helps to explain why Man’s fees hover beneath 1 per cent of managed assets each year, compared with just under 50 basis points for Schroders. However, these chunky fees look hard to justify based on the client proposition. Of the 338 funds priced on Man’s website – some of which date back to 1998 – the (non-weighted) annualised return is just 4.5 per cent. 

Of course, bulls will argue that hedge funds should not be judged against years of ultra-loose monetary policy and double-digit annual gains in the S&P 500. They’d have a decent case; after all, institutional clients do not expect hedge funds to deliver outperformance relative to a long-only index year after year. And if a correction is due, then the passive, tech-weighted, chase-it-higher equity investing model will inevitably take a beating. But investors need only look back to 2018, when major share indices tumbled, to question the pro-Man thesis. While the group’s mandates attracted $10.8bn of net inflows during the year, this was entirely wiped out by negative investment movements and poor currency hedging. Indeed, assets under management have pretty much moved sideways since the end of 2017.

As such, this set-up has not delivered a clear benefit to shareholders. Despite rolling over its share buyback programme several times, the FTSE 250 Index has outperformed the stock by 48 percentage points over five years, before dividends. Performance fees have proved erratic, and as analysts at Numis point out, management fee EPS – on which the dividend is based – has made little progress since 2012, when they hit 9.5¢ a share. Numis’s 2020 forecast stands at 9.0¢.