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Man investors vote with their feet

Category : Business

Man Group chief Peter Clarke thinks investors don’t care about its relatively hefty fees – but the fall in AHL’s funds under management points to a different story

“People choose us because they think we will perform – rather than because we might be slightly cheaper, or slightly more expensive, than the guy next door,” said Peter Clarke, chief executive of Man Group, on Tuesday when asked if the relatively hefty fees charged to investors in Man’s main AHL fund might be part of the group’s problem, as suggested here on Monday. Clarke prefers Man’s standard explanation that trend-following systems don’t like choppy markets and that is why AHL is still 14% below its peak value achieved in 2008.

No doubt up-and-down markets are the main impediment. But do hedge fund investors really care nothing about fees if they believe the net investment performance will be good?

That’s quite hard to believe, especially when Winton, AHL’s main rival in the computer-driven trend-following game, charges less (1% versus as much as 3%) and has performed better in recent years. Man is in the uncomfortable position of charging a premium price for an investment product that appears to have developed a splutter.

On a 25-year view, AHL’s record remains sensational – 15% a year on average. The trouble is, investors tend to look at the one, three and five-year records and AHL’s scorecard is in danger of looking weak on all those counts. David McCann at Numis is surely correct when he says AHL’s performance has to recover in the next two years or else the investment record would be “unsaleable”, especially at management fee rates greater than 3%.

Markets – who knows? – may start trending again tomorrow, in which case Clarke’s policy of premium pricing may be vindicated. But the amazing statistic is that AHL’s funds under management have fallen from $28bn (£17.3bn) in June 2008 to $19.5bn at end of March this year. That’s quite a comedown – it’s far greater than the decline implied by the investment performance.

To a large degree, investors are voting with their feet – and Man’s princely fees may be more of the story than Clarke cares to admit.

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