Portfolio managers can be pulverised by the quarterly grind of fund reporting. Wearing as it is to keep ahead of peers, any elation from a strong period of performance can feel fleeting.
Man Group bosses will enjoy the good times. The London-listed alternative asset manager reported $3.1bn of net inflows for the first quarter on Thursday, almost trebling expectations. Good recent performance in its absolute return products bodes well for more inflows this year.
London-listed asset management stalwarts Schroders and Abrdn have sought to add higher fee alternatives to their legacy long-only businesses, Man Group did the reverse some years ago. Its core AHL hedge fund business tacked on long-only specialists, under both the GLG and Numeric banners. In the first quarter, absolute return strategies delivered an estimated weighted return of 4.1 per cent, says corporate broker Numis, better than relevant benchmarks from Hedge Fund Research.
Clearly, Man’s shares had priced in any good news as its stock price hardly reacted on the day. Shares have far outpaced the market and its peers over the past year. Even so, its valuation — about 9 times forward earnings — is as much as a fifth cheaper than European peers.
The question is why. Sceptics point to the lack of predictability concerning Man’s absolute return funds’ performance fees. That may sound harsh given all asset managers in the public markets face some fee diminution these days. At the other end of the alternative asset manager spectrum are private capital managers, which can lock up client money for years. One of these Intermediate Capital Group trades on an earnings multiple a third higher.
Partly to close the valuation gap, Man buys back its shares, $428mn in the last three years, perhaps 15 per cent of average market value. It prefers this to making additive acquisitions at valuations above its own, a recent stratagem of Schroders. Man’s strategy makes sense, given its recent performance portends more inflows.
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