Man Group shuts funds in overhaul of guaranteed products

World's largest publicly traded hedge-fund manager is closing a range of products aimed to protect clients from losses after they failed to meet performance targets.
AUG 28, 2013
Man Group Plc, the world's largest publicly traded hedge-fund manager, is shutting a range of products aimed to protect clients from losses after they failed to meet performance targets. The company decided this month to shut Man Vision Ltd., a $40 million pool that sought to generate returns of more than 10 percent annually, according to an Aug. 12 letter sent to clients and obtained by Bloomberg News. Man Group is also closing similar offerings that, like Vision, were tied to the performance of AHL Diversified, the firm's biggest hedge fund, said a person with knowledge of the moves who asked not to be identified because they aren't public. AHL, a $14 billion hedge fund that uses computer algorithms to try to profit from trends in asset prices, has been hurt after the U.S. Federal Reserve roiled markets earlier this year by indicating that it may taper its bond purchases. Guaranteed products based on AHL and other hedge funds are Man Group's most profitable offerings, because they levy fees that can be more than twice what the industry typically charges. “They definitely have the highest margins and that's due to large management fees and because AHL is run by a computer that's not demanding a bonus at the end of the year,” said David McCann, an analyst at Numis Securities Ltd. in London who has a sell rating on Man Group. Still, “no one has wanted to buy these products in the last three to four years” because the returns have been lackluster. Vision, which totaled about $160 million a year ago, fell about 5.6 percent in the first half of 2013, according to data compiled by Bloomberg. The fund has lost about 12 percent since it started trading in July 2008.

Bond Offering

Vision promised clients that bought a bond issued by Man Group and held it until maturity in 2020 that they won't lose their initial investment. Credit Suisse Group AG provided a guarantee to protect investors against declines in the bonds. The pool “no longer has the potential to achieve its performance objectives,” Man Group said in the letter, which was obtained by Bloomberg News. David Waller, a spokesman for the London-based company, declined to comment on the fund. Man Group said in a July 2012 statement that it planned to reduce its reliance on high-margin guaranteed products, because clients weren't buying them. Assets under management at the guaranteed-products division have declined 64 percent over the past two years to $4.7 billion, less than a 10th of the company's $52 billion of assets under management.

Fees Charged

Man Group sold Vision as a product that could take advantage of directional market moves through AHL and also developing global themes, such as the growth of emerging economies and climate change, by selecting the best outside hedge funds. The firm planned to boost returns through leverage, or borrowed money. Vision charged bondholders an annual 3 percent fee for investing in AHL and an additional 1.5 percent fee for investing in the funds-of-funds, according to the prospectus. Zurich-based Credit Suisse also received a 1 percent annual fee for guaranteeing the bonds and for entering into a swap with Man Group, the prospectus shows. Most hedge funds charge clients a 2 percent management fee to oversee assets. Man Group plans to pull all of Vision's investments in AHL and other hedge funds by Sept. 1, moving them into cash and bonds, according to the client letter. Clients can hold their investment until maturity, redeem and lose the guarantee protecting their initial investment, or move their money to another Man Group product at no charge, according to the firm. (Bloomberg News

Latest News

Supreme Court blocks Trump's bid to fire Fed Governor Lisa Cook
Supreme Court blocks Trump's bid to fire Fed Governor Lisa Cook

A 5-4 ruling preserves the Federal Reserve's independence for now, but the legal fight over presidential removal power is far from settled.

Morgan Stanley boosts returns on client cash, analyst says
Morgan Stanley boosts returns on client cash, analyst says

For years, large firms have been facing penalties and questions from regulators over interest rates for clients’ cash accounts.

Volatility has been roiling the markets. But advisors have got the tools to deal with it
Volatility has been roiling the markets. But advisors have got the tools to deal with it

Market volatility can be stressful, but it also represents opportunity for advisors and their clients.

JPMorgan's succession clock is ticking — and this time, insiders say it's real
JPMorgan's succession clock is ticking — and this time, insiders say it's real

After years of mixed signals and shifting timelines from Jamie Dimon, Wall Street sources suggest the race to lead JPMorgan Chase has entered its decisive stretch.

How FINRA's updated gift rule forces firms to rethink compliance workflows
How FINRA's updated gift rule forces firms to rethink compliance workflows

Advisors and broker-dealers adjusting to the March 2026 threshold change face bigger challenges around back-end monitoring than the new dollar limit itself.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.