Citi Sees Slog For Man

Mar 27 2014 | 11:55am ET

Citigroup expects Man Group CEO Emmanuel Roman to turn things around at the struggling hedge fund giant, but not for a while.

The bank put a “sell” recommendation on Man stock yesterday, warning that underlying profit is unlikely to grow until 2016. Citi cited Man’s increasing reliance on its GLG unit—and GLG’s reliance on a highly-paid staff.

GLG employees earn between 50% and 60% of the unit’s revenue, Citi said, twice that taken home by employees of other Man units. Overall, 42% of Man’s net revenue went to paying staff in 2013.

“We see potential at Man,” Citi said. “but believe the shares already price in a recovery that is two to three years away.”

Citi is not impressed with the potential impact of Roman’s cost-cutting program, warning that the cuts made so far have already been eliminated by the strength of the U.S. dollar, and that further cuts won’t make much difference unless its assets under management shrink precipitously.

The bank estimates that Man will miss its 2015 earnings estimate by nearly one-third.

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