Fears of a market crash are reflected in a tale of two shares. The stock of The Hut Group, a UK ecommerce business, collapsed by a spectacular intraday figure of 30 per cent on Tuesday. Less splashily, shares in Man Group leapt 7 per cent on Wednesday. The hedge fund group has a reputation for producing strong returns during prolonged market retreats. Investors gave it more funds to manage in the third quarter than expected.
THG shares started tanking after a presentation by founder Matthew Moulding reinforced claims that its business model is flimsy. But the scale of the drop, which occurred on thin volumes with few signs of an algo-exacerbated rout, reflect wider worries over inflated asset values.
Some commodity prices are swinging wildly as price inflation builds. Equity volatility is relatively high. That is prompting conservative institutions to seek out specialist portfolio managers.
Only a fraction of Man’s nearly $140bn assets under management fits the typical discretionary long-only label. The rest sit in either absolute return or systematic funds driven by quantitative driven trading. Its spread of funds, plus various quant-driven strategies, should make life easier for its marketers to raise money. But that depends on performance.
Often the past provides a prologue of inflows to come. Man has benefited from good performance, particularly in its absolute return strategies. Although not all of the performances remained above water in the past quarter, they did so in the nine months to September and crucially over the past three years. Demand for alternatives provided almost all of the quarterly inflow of $5.3bn.
Man offers little in private capital areas, which might have left it at a disadvantage to local listed rivals such as Intermediate Capital Group or EQT in Sweden. But shares have kept up with these peers. Trading at a forward price to earnings multiple of 8 times, Man also looks at least half as expensive too. That suggests the market sees this good quarter of inflows as not easily repeatable.
Assuming clients continue to want a one-stop shop for risk-averse investors and those who need traditional, long-only products, Man should continue to benefit. Stock pickers should meanwhile take warning from the rout in THG shares. Illiquid shares that look like outliers should be avoided with more than the usual vigour.
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