Polar Profits Rise As Assets, Performance Fall

Jul 7 2008 | 11:00am ET

Polar Capital has ended a year of bad news with some good news.

The London hedge fund manager posted a 42% jump in profits before tax, despite abysmal performance and huge redemptions. Polar turned a £14.5 million (US$28.8 million) profit in the year ended March on £47.6 million (US$94.4 million) in revenue, the latter up from £41.3 million (US$81.9 million) from a year earlier.

“While this underlying environment has inevitably created a headwind for some of our asset growth targets and has led to adjustments within our business, we enter the new fiscal year believing the markets will continue to be challenging but cautiously encouraged about our prospects,” CEO Mark Kary said.

Both management and performance fees rose, despite year-on-year declines in performance and assets under management. Assets under management fell from US$3.4 billion to US$3.1 billion during the fiscal year, but big asset growth in the first half produced sufficient fees to weather big redemptions and poor performance in the second half: The firm took in £26.1 million (US$51.8 million) in management fees—a 29% increase from the previous year—and £21.1 million (US$41.8 million) in performance fees, a 2% increase.

What’s more, things are looking up: Seven of the firm’s 11 hedge funds are up this year and two are flat, just two—its Japan and utilities funds—are in the red year-to-date. The firm’s assets have bounced back, as Polar now manages some US$3.3 billion. And the firm is considering the launch of two new funds: an environmental and a credit offering.

Still, not all the news is good: The aforementioned troubled Japan fund has shrunk by an eye-popping 98% in less than a year. The once US$564 million fund had just US$7.8 million in assets at the beginning of last month after 10 consecutive months of negative performance and investors fled for the doors.

Despite the terrible news, Kary said the firm has not decided whether the Japan fund will join three others closed earlier this year on the scrapheap.

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