LEX Coming back from the brink is never easy. With the rush by investors to exit the hedge fund industry over, assets under management have stabilised but are not yet showing much growth. Man Group’s funds under management barely budged in the third quarter. US-listed GLG managed a 13 per cent rise quarter-on-quarter. Yet investors’ renewed focus on transparency and protective investment structures such as managed accounts benefits these establishment funds, rather than smaller outfits.
For GLG – which bought Société Générale’s UK-based long-only equities business this year – market-driven flight merely compounded the impact of star manager Greg Coffey’s departure. His funds accounted for about $7bn of the $10bn that vanished during 2008. In the lossmaking third quarter, the group saw modest inflows, aside from performance gains.
But individually negotiated managed account fees and a smaller proportion of assets in higher-margin hedge funds are compressing margins. Management and administrative fees relative to assets have fallen from almost 2 per cent last year to less than 1 per cent now. With assets back to $21.6bn, that is at least enough to break even, before performance fees.
Creeping back to high-water marks, over which funds can charge for performance, is a slog. About half of GLG’s $7.6bn of assets under water remain more than 30 per cent below that threshold. But high fixed costs mean considerable juice as flows increase. Another leg-down for markets could dent confidence – with GLG shares off almost a third since the S&P 500 hit a recent high last month. Not everything has changed. In spite of hand-wringing on hedge funds’ two-and-20 fee structure, GLG reports “zero pressure” on fees from clients. Apparently you can stare death in the face and emerge with your soul intact.
