Shares in Man Group, the world’s second largest hedge fund, tumbled as much as 15 per cent in London after steep losses for the company’s flagship fund.
Man’s $16.4bn “black box” fund AHL, which uses complex computer models to spot and ride trends in hundreds of markets around the world, lost more than 10 per cent of its value in May and is down more than 12 per cent from a peak earlier this year.
Almost all of the losses are attributable to long positions in global bond markets, which have been hit hard in the past two weeks on investors’ anticipation of an end to the US Federal Reserve’s quantitative easing measures.
AHL also had long positions on contracts linked to the Nikkei, which has also fallen in value significantly in recent weeks.
The fall in Man’s shares curbs a six-month rally for the company, following the appointment of Emmanuel “Manny” Roman as chief executive and a shake-up of the hedge fund manager’s corporate structure.
AHL remains the company’s biggest revenue generator, in spite of efforts to diversify income streams over the past two years. While the fund accounted for billions in annual profits at its peak, its more recent run of underperformance has been a major drag on Man’s share price.
AHL is about 13 per cent from its “high water mark” – the point of peak portfolio value after which the fund can start charging lucrative performance fees, equivalent to a fifth of all profits, on its clients’ capital.
Analysts have cautioned for some time that Man’s share price rise this year may have been overdone.
“Man Group’s share price has increased 30.7 per cent so far in Q2/13. This compares to the FTSE 350 Financial Services index and the FTSE 250 index increasing by 7.9 per cent and 2.4 per cent, respectively, on a quarter-to-date basis,” Peter Lenardos, analyst at RBC, said in a briefing note to clients on Tuesday night.
AHL has not been alone in suffering losses in May. Almost all of the fund’s peers, known as CTAs, which use the same computerised trading strategy, also lost money.
“May has rattled investors with large bond portfolios,” said Anthony Lawler, portfolio manager for hedge fund investor GAM. “Across all [hedge fund] strategies, trades that caused pain included long fixed-income positions and long exposures to the many markets that reversed or were choppy, including energy, Japanese equities and soft commodities.”