THERE was, until yesterday, a solitary bright spot for Man Group, the beleaguered hedge fund giant. AHL, its flagship vehicle and main profit driver, was still performing well despite a torrid time for the rest of the business, adding $1.5bn in the second quarter while almost every other fund lost money.
That’s no longer the case. AHL, like other quant funds, has been caught out by last week’s rally. Its long positions in fixed income bonds and its shorts on equities forced it to post a 5.5 per cent loss for just one week.
To make matters worse, Goldman turned negative on Man stock, on the grounds that it expected poor third quarter performance with no visibility on when things might improve.
The shares, which have lost some 37 per cent since its disastrous update a fortnight ago, closed down by six per cent yesterday.
AHL is a victim of see-sawing markets rather than poor management. Quant funds – computer driven funds that pick stocks based on complex algorithms – often struggle when markets act irrationally.
The GLG funds acquired by Peter Clarke last year are supposed to offset any volatility in the performance of AHL – but they are dragging down performance even further.
In the second quarter, less than a third of Man’s GLG funds managed to outperform the average hedge fund. That suggests the integration of those fund managers isn’t proceeding as planned.
AHL might be worrying investors today – but we think GLG is a potentially much bigger problem.