Man Group Logo (Photo credit: Wikipedia)
These are tumultuous times for the $2 trillion hedge fund industry. Returns last year were disappointing, regulators and prosecutors in New York and London have been bringing insider-trading cases, and investors have started to pull money out of some funds. The biggest stars of this rich industry, like billionaire John Paulson, have been humbled.
The latest hedge fund titan to stumble is Man Group, the world’s largest publicly-traded hedge fund firm. Man Group, which has $59 billion in assets under management, started the month of May by announcing that in the first quarter of 2012 investors in Man’s hedge funds withdrew $4.1 billion, which netted out to $1 billion of outflows.
At Man Group’s annual meeting of shareholders in London, chief executive Peter Clarke and other executives came under fire from some shareholders for the firm’s plummeting stock, which has tumbled by 23% in 2012 and 56% in the last 12 months. Investors pushed the stock down about 5% on Tuesday.
“I do not feel our shareholders do anything other than support existing management, as witnessed by the proxy votes,” Clarke said in response.
The root of the problem, as is often the case in hedge fund land, is performance. AHL, Man’s biggest hedge fund, lost 6% last year and is struggling again in 2012. The combination of poor performance and funds flowing in the wrong direction diminishes fees.
Still, another problem for Man has been its $1.6 billion acquisition in 2010 of GLG, another big hedge fund firm. GLG was supposed to diversify Man’s assets and fee revenue, but it instead just added to the firm’s problems as performance lagged. Big shot traders might not stay to see if the firm can turn things around. AHL is currently 12% below its previous high watermark.
If hedge fund performance at Man does not beat the market in 2012, more of its investors are sure to head for the exits.
