30 Sep 2011
Standard & Poor's Ratings Services said that the ratings and outlook on U.K.-based hedge fund manager Man Group PLC were unaffected by the 8.5% decline in assets under management (AUM) during the quarter ended Sept. 30, 2011, which was below its base-case expectation of broadly flat AUM growth. Man's pre-close trading update, released on Sept. 28, 2011, indicated a decline in AUM from $71 billion at June 30, 2011 to $65 billion. This was due to weak investment performance, net outflows, and the impact of foreign exchange movements on reported AUM.
S&P said the quarterly decline in AUM is a result of market volatility and near-term macroeconomic uncertainty. It expects the difficult operating environment to weigh on Man's investment performance and net flows for the remainder of 2011, but its ratings on Man, as well as other hedge fund managers, recognize the potential for some volatility in investment performance and investor flows. Man acquired hedge fund manager GLG Partners Inc. in 2010. Notwithstanding the expectation of near-term volatility, S&P said it continues to view the acquisition as a net positive for its business profile.
Almost half ($2.9 billion) of the quarter's fall in AUM was caused by negative investment performance and net outflows on lower-margin, long-only products, which tend to follow broad market movements. A further one-third of the decline in AUM stemmed from foreign exchange movements, which could reverse in subsequent quarters. While GLG's negative contribution to net flows has reversed recent trends at GLG, we view the decline in the context of general investor risk aversion and Man's focus on liquid investment formats.
S&P added that it considers that Man continues to maintain strong balance sheet liquidity. Total available liquidity resources stand at $3.4 billion and capital in excess of regulatory requirements is $1 billion. Furthermore, S&P expect Man's debt service metrics and leverage ratio to improve over the medium term because it has recently bought back some of its debt to reduce its gross interest expense and leverage.
S&P said the quarterly decline in AUM is a result of market volatility and near-term macroeconomic uncertainty. It expects the difficult operating environment to weigh on Man's investment performance and net flows for the remainder of 2011, but its ratings on Man, as well as other hedge fund managers, recognize the potential for some volatility in investment performance and investor flows. Man acquired hedge fund manager GLG Partners Inc. in 2010. Notwithstanding the expectation of near-term volatility, S&P said it continues to view the acquisition as a net positive for its business profile.
Almost half ($2.9 billion) of the quarter's fall in AUM was caused by negative investment performance and net outflows on lower-margin, long-only products, which tend to follow broad market movements. A further one-third of the decline in AUM stemmed from foreign exchange movements, which could reverse in subsequent quarters. While GLG's negative contribution to net flows has reversed recent trends at GLG, we view the decline in the context of general investor risk aversion and Man's focus on liquid investment formats.
S&P added that it considers that Man continues to maintain strong balance sheet liquidity. Total available liquidity resources stand at $3.4 billion and capital in excess of regulatory requirements is $1 billion. Furthermore, S&P expect Man's debt service metrics and leverage ratio to improve over the medium term because it has recently bought back some of its debt to reduce its gross interest expense and leverage.
