Hedge fund giant eyes a bounceback

Nick Goodway
28 May 2009

This year could see the bounceback of the hedge fund industry after a pretty disastrous 2008, Peter Clarke, chief executive of the world's largest publicly quoted hedge fund manager Man Group, said today.

But news that the group took a $900 million (£565 million) hit on its funds in the final week of March, just after its most recent trading update, pushed the shares 10% or 25p lower to 225p.

Despite confirming a 40% fall in Man's dollar profits for the year to the end of March and a 37% drop in funds under management, Clarke said: "Certainly 2009 has begun very well for the hedge fund industry with positive returns across the industry overall."

Alongside the turmoil across financial markets Clarke had to deal with Man's near £250 million exposure in its RMF fund to convicted New York fraudster Bernie Madoff. That led him to order a complete shake-up of how Man's funds are valued inlcuding making them far more public in revealing their exposures to mother managers.

Clarke said: "Madoff had two real impacts for us. The first was the industry-wide impact. An event of that nature in an already fragile economy around the world was not helpful to investor sentiment and precipitated reemptions across the industry.

"For Man, we did have an investment in Madoff as part of our institutional portfolio. We've suffered some damage in our reputation at RMF as a result of that. And clearly we've been working hard in dialogue with pour investors to rebuild the confidence and reputation. I think we've got some solutions in terms of the changed environment with our new investment management business."

He said the new management regime that comes into play later this month gives investors far greater flexibility across Man's different funds and offers them greater visbility.

Asked about the likelihood of much stricter regulation of the hedge fund industry Clarke said he was not worried. "We are already heavily regulated as an organisation and we are used to regulation. There is on the horizon a change of regulation but I don't think it's going to have a dramatic impact on how we need to resource and capitalise ourselves. Most of the detail is not yet known so it's difficult to be specific."

But he is convinced 2009 will be a better one for the industry. "A number of market commentators anticipate that the industry's funds under management will bottom out this year around $1trillion and the regain upward momentum. There is a weight of money on the sidelines looking to get back into the markets. So I think the opportunities for the hedge fund industry in terms of inflows are strong. The questionnis when those inflows will begin and how strong they will be."

Clarke added: "A major industry shake-out in the industry is underway, precipitating a sharp fakll in the number of managers, led more by attrition than consolidation as many managers have not been able to survive the decline in assets. Those factors play into the hands of our business model."

Underlying profits at the group fell 64% to $743 million. The dividend is unchanged at 44 cents.