Man Group rides out volatile first quarter

Funds under management (FUM) sat at $78.6bn at 31 March, down from $78.7bn at the end of December, which chief executive Manny Roman said was a demonstration of the value and benefits of a diversified business model in what are challenging market conditions for the global investment management industry.

There were net inflows into Man's quant funds of $1.3bn and for quant long only strategies of $0.4bn but these were partly offset by outflows from discretionary alternative, discretionary long only, and guaranteed products, with net flows for fund of fund alternatives flat for the quarter.

The investment effect was a negative movement of $0.7bn in the quarter mainly due to GLG's long only strategies, which counterbalanced the positive investment performance across AHL's range.

AHL's strong quarter saw Quant Alternatives FUM rising by 14% to $18.7bn on the back of good net inflows of 8% and excellent investment performance of +5% in a volatile quarter, conditions not usually helpful to the trend-following strategies.

It was a tougher quarter for GLG, with negative net flows in both Alternative and Long-Only categories as well as negative market movements/investment performance of a combined $1.5bn, a 5% decline. Japan Core Alpha was down 16.3%.

Analysts noted that this left only 9% of GLG assets which are eligible for performance fees at high watermark at the end of the quarter.

Investment performance for Numeric and FRM broadly flat for the quarter.

"The ongoing uncertainty in the markets remains challenging and, accordingly, the risk appetite of our clients has the potential to impact flows," Roman admitted.

"However, the ongoing diversification of our business has enhanced our resilience as a firm, and positions us well to navigate the current economic climate.

"As we have previously indicated, we continue to explore new options for growth, both organically and by acquisition, within our disciplined financial framework."

Analysts at Shore Capital were impressed, saying the inflows represented "a good performance in a difficult quarter for fund managers", especially as the company had indicated in February that the net flows for 2016 were slightly negative at that stage.

"Our full year assumption is for net inflows of $3.5bn which we had feared may need to trimmed on the back of a negative Q1 but our inclination is to leave this figure unchanged at this stage," ShoreCap said. "Similarly our full year assumption for market movements/investment performance is $2.7bn (3.4%), which we will also leave unchanged after this Q1 update."

Numis stuck with its 'sell' rating on Man as, while analyst David McCann expects decent total FUM growth over the coming years, he believes this will be accompanied by a "significant reduction in the average contribution margin", reflecting FUM/flow mix shift towards lower revenue margin, lower operating margin products and underlying margin pressure, rising non-staff costs and a higher tax rate.

"This will put significant pressure on organic management fee earnings growth. We estimate that for every $1 being lost from (old) high margin product AuM, the company needs to sell circa $3-5 of (new) lower margin product to offset the profit impact: the company has to run flat out in sales, just to stand-still in organic profits."

McCann foresees acquisitions to boost earnings, but he views the current valuation as "significantly above fair value".

Shares in Man were rising after the results, however, putting on 6% to 160.10p by 1300 BST on Thursday.