By Nick Evans, editor
We should be getting used to surprise coalitions by now. First,
the UK's Conservative and Liberal parties join forces in a
power-sharing government that promises to transform the
political landscape in Britain. Now Man and GLG are teaming up
in a deal that could have equally far-reaching implications for
the fast-changing investment management landscape.
Is it a game-changer for the hedge fund world? Yes. The
combination of Man and GLG is awesome - both in the enlarged
group's current strength and breadth of business, and in its
future earnings potential. And, like all good coalitions, it
looks pretty obvious with hindsight.
Regulation is changing the marketplace for hedge funds - not
just through the EU's flawed directive, about which more than
enough has already been said to last a lifetime, or through
half-baked measures such as Germany's unilateral new ban on
naked short-selling of bank shares, Eurozone government bonds
and sovereign CDS.
It is also being changed through the application of greater
global regulatory oversight (with which it is hard to disagree
in principle) of an industry that is an increasingly central
part of the world's rapidly changing financial system.
Investor attitudes are changing fast too - with a greater
focus on liquid strategies, operational and business stability,
uncorrelated performance and counterparty strength as well as
rapidly growing demand for onshore as well as offshore
Scale, diversification, resources, distribution: these will
be the key attributes of the leaders in the alternative asset
management industry, aside from the traditional and
overwhelming one of performance, and these are what a combined
Man GLG group should be able to deliver in spades.
The enlarged group will span all of the key hedge fund
investment areas - managed futures, equity, macro, emerging
markets, credit and convertibles - in a single operation, with
the potential to structure funds and strategies in almost any
type of offshore or onshore format, and to combine different
strategies in ways that offer almost endless variations for
investors in terms of market exposures and return streams.
So there are lots of reasons why the combination of Man and
GLG should work. Whether it will work or not is another matter.
Big is not always better - and the optically compelling revenue
synergies that could flow from the merger will depend heavily
on Man's distribution machine continuing to work as effectively
as in the past, and on GLG continuing to produce genuinely
first-rate investment products to sell.
Many people have long predicted a wave of consolidation in
the alternative investment industry. On paper, that looks right
and logical. But, in reality, putting together people
businesses with strong and idiosyncratic cultures has proved
And it has proved particularly hard at the smaller end of
the scale, where those businesses are still heavily influenced
by the people who started them and where the synergies of any
kind of combination with other equally esoteric operations may
be hard to realise.
At the other end of the scale, though, consolidation is much
more achievable - and most of all among quoted fund management
groups, which have already had to get accustomed to operating
in the public rather than the private world.
The inescapable fact is that the big are getting bigger in
the alternative asset management world - and the financial
crisis has only served to reinforce and accelerate that trend.
In Europe, the groups that have benefited most from the general
industry rebound have been those that were -already the largest
- like BlueCrest, Lansdowne, Brevan Howard, Winton and
Does that mean the end of the boutique? No. There is always
room for specialists in any industry - and the alternative
asset management business, more than most other businesses,
needs a constant flow of new entrants and innovators to keep
the bigger incumbent players on their toes and to give
investors the widest range of choice.
But life is changing - for the big battalions as well as for
the smaller shops - and a new and more mature era is genuinely
emerging. "Our world is changing," said Man CEO Peter Clarke.
"The barriers to entry are rising. Balance, scale, resources
and relationships are key."
Mergers of people businesses are notoriously hard to
execute. There is plenty that could go wrong with the Man GLG
deal. They are two very different kinds of organisation in
terms of culture, history, investment ethos and management
style. Putting them together will not be easy in practice. But
it is hard to disagree with the theory.