Man Group’s 2014 Profit Increases 62%, Beating Analyst Estimates

Feb 25 2015 | 10:43am ET

By Lindsay Fortado (Bloomberg) -- Man Group Plc, the world’s largest publicly- traded hedge fund firm, said pretax profit increased 62 percent in 2014, boosted by sales and performance fees from its computer-driven AHL trading funds. The shares rose.

Adjusted pretax profit jumped to $481 million from $297 million in the previous year, the London-based company said in a statement on Wednesday. That beat the $407.2 million average estimate of 14 analysts in a Bloomberg survey.

Chief Executive Officer Emmanuel Roman, 51, has been expanding through acquisitions over the past year, adding more than $16 billion in assets during 2014. The company’s AHL funds, which use computer algorithms to trade, were some of the best- performing hedge funds in the world last year.

The firm completed a restructuring ahead of time and the acquisitions “have materially enhanced our investment capabilities and our North American business,” Roman said in the statement. “We have a more diversified offering to clients and a range of attractive options for growth.”

The shares jumped as much as 3.2 percent, trading at 193.1 pence, up 2.6 percent at 8:45 a.m. in London. They have more than doubled in the past year.

Sales Rise

Gross sales rose 36 percent to $21.9 billion from a year earlier, while redemptions in Man Group funds declined 6 percent. The firm said it plans to repurchase $175 million of shares and pay a final dividend of 6.1 cents a share.

AHL Diversified was one of the best-performing hedge funds in 2014, returning 32 percent, according to investor updates. The smaller AHL Currency Fund rose more than 59 percent and AHL Evolution climbed more than 20 percent.

Roman said that the company doesn’t expect to see a “meaningful pickup in demand for” AHL products until later this year. With a slowdown in sales across discretionary strategies and “ongoing volatility” in markets, Man Group remains “cautious in our near-term outlook,” he said.

“A sustained downturn in AHL performance poses the greatest risk to Man’s share price performance as the correlation between the share price and AHL performance is around 95 percent,” Peter Lenardos, a London-based analyst at Royal Bank of Canada, said in an e-mailed note. He has a sector perform recommendation on Man Group shares.

Man Group agreed earlier this month to buy the equities management business of NewSmith to expand in Tokyo and London, adding another $1.2 billion of funds under management.

Surplus Capital

The company said in December it would buy Silvermine Capital, a U.S. leveraged-loan manager, following purchases of U.S. fund-of-hedge-funds Pine Grove Asset Management and Numeric Holdings, a Boston-based quant firm. The acquisitions of Pine Grove Asset Management and Numeric Holdings added $16.2 billion to funds under management, Man Group said.

Man Group had surplus regulatory capital of $419 million as of the end of 2014. Assets under management increased 35 percent to $72.9 billion after the acquisitions.

“Small, me-too acquisitions do not add value in our book and we would prefer to see the cash just handed out to shareholders,” said Jason Streets, a London-based analyst at Jefferies with a hold rating on the shares. “Man’s dilemma remains the same: how do you diversify away from AHL? And why would you want to when it’s performing so well?”

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