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Man Group gains market share as EM debt strategies boost inflows

Man Group Plc has benefited from investors crowding into emerging market debt, seeing its strongest quarter of inflows since 2011.

The London-based hedge fund said funds under management totaled $88.7 billion as of March 31, up from $80.9 billion at the end of 2016, with inflows of $3.0 billion. Emerging market debt strategies accounted for 70% of these inflows.

"People are investing in that strategy for reasons we think make sense, and we're gaining market share and picking up mandates in the market, in some cases from other competitor funds," a Man Group spokesperson told S&P Global Market Intelligence.

Debt held by companies in emerging markets has proved attractive to some investors as U.S. interest rates have begun to rise. Increasing rates make the debt more expensive to repay, and hedge funds involved in this strategy aim to take advantage of heavy discounts typically afforded on distressed debt.

"Lots of institutional investors have emerging market debt as a core allocation, and in a low-yield environment debt securities can offer quite attractive yields, but we don't think there are necessarily that many great emerging-market debt strategies out that have great track records of strong performance," said the Man spokesperson. "On the supply side there just aren't that many successful investment teams around."

Man moved in 2016 to build a team specializing in emerging market debt strategies, in January hiring Guillermo Ossés from HSBC Global Asset Management, where he had overseen a $20 billion emerging market debt fund. Other team members followed later in 2016.

In a research note, RBC Capital Markets analyst Peter Lenardos warned that emerging market debt and other long-only strategies are lower-margin, but added that this is consistent with management guidance and should be anticipated.

Much of the rest of Man's inflows for the quarter came from a single new institutional mandate, for $1.4 billion, to Man Group's FRM business, which invests in other hedge funds, according to the Man spokesperson.

"It shows the very institutional nature of our business — tickets can be very big and can move the needle a lot," the spokesperson said.

A stronger performance

Man's results come as hedge funds more generally recover from 2016 when they saw $112 billion of global outflows. March, in particular, has been a good month for the sector, with worldwide inflows at $15.7 billion — the highest in 20 months. In the first quarter, hedge funds globally saw returns of 3.18%, according to Preqin, a hedge funds research firm.

For Man, in particular, the 10% first-quarter increase in funds under management follows a 3% increase in 2016, a year when it lost its CEO Manny Roman to U.S. investment management firm PIMCO.

The results, with inflows up 500% year-on-year and 400% quarter-on-quarter, were higher than many analysts had predicted. Justin Bates, an analyst at London-based boutique investment bank Liberum, said in an interview that Man's first-quarter performance was "a very strong start to the year that is likely to lead to consensus upgrades." For the full year, Bates said, Liberum was forecasting AUM of $90.8 billion and net inflows of $4.5 billion — numbers the hedge fund came close to meeting in the first quarter alone.