Has worm turned at Man Group?

Man Group has had a rotten 18 months. The hedge fund lost over half its value, falling from a record high amid volatility in China and around the Brexit vote, and a strong dollar. But traders are now betting that the worm has turned after a bigger-than-expected increase in third quarter assets under management (AUM) and new share buyback programme.

In his first set of numbers since taking over from Manny Roman six weeks ago, chief executive Luke Ellis reported a 6% increase in AUM to $80.7 billion. That's up from $76.4 billion at the end of June and about $3 billion more than analysts at UBS had pencilled in.

And Ellis has announced plans to return $100 million of surplus capital to shareholders through share buybacks over the next 12 months. In response, Man shares rocketed as much as 17% to a four-month high, just 24 hours after nudging lows not seen since the post-referendum sell-off.

Man, now valued at over £2 billion, has also agreed to buy Aalto, a firm managing real estate equity and debt strategies in the US and Europe, for up to $232 million in upfront payment and earn-outs. It will also form the basis of Man's new Global Private Markets division.

That extra $4.3 billion of funds under management was driven by a fifth consecutive quarter of net inflows, this time at $1.3 billion, with institutional clients piling into Man's quant alternative and quant long only funds.

Man also made $2.5 billion on investments, driven largely by GLG and Numeric. That made up for underperformance of some strategies at its computer-driven AHL arm, where trend following strategies struggled during the period.

"All in all, we think the market will in the short term regard the small AUM beat and share buyback favourably, especially in light of the recent pull back in the share price," wrote Numis Securities analyst David McCann Friday. "The acquisition is small and appears to be fully valued, although strategically interesting in our view."

McCann thinks the shares are only worth 115p, but Michael Werner at UBS is far more bullish, tipping them up to 150p.

There are risks, however, and Werner has a warning for would-be investors:

"The most important, in our view, is performance risk, which describes the ability of EMG to beat their fund performance benchmarks. In a scenario where EMG is unable to beat its fund performance benchmarks, the firm may lose client flows.

"Investors, tend to base their asset management allocation decisions on the 1-year, 3-year and 5-year track records of the funds so a weakening performance record will have a negative impact on client flow market share and ultimately, EMG's bottom-line."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.