By Neil Wilson
There are various reasons why hedge funds, in previous times
derided as being from the "cowboy fringe" of asset management,
have become ever more institutional. Pressure on the
industry-both from regulators and investors-to move further in
that direction has intensified since the recent financial
crisis. Such details perhaps explain why the proposed merger of
Man Group, listed on the London Stock Exchange, and GLG
Partners, listed in New York, is being hailed in some circles
as a game-changing event: The hedge fund business really is
The combination of Man and GLG is indeed awesome in scope.
Together, the combined group will have assets of more than $60
billion. And it will be strongly positioned for the expected
huge growth in onshore products globally, notably through the
European UCITS framework-where GLG has already raised more than
$1 billion in recent months and where Man has recently made its
AHL managed futures strategy available to investors for the
first time through the UCITS format.
In announcing the deal, Man Group CEO Peter Clarke and GLG
co-CEO Noam Gottesman described it as "transformational"-in
product diversification, distribution, diversification of
revenue streams and cost synergies.
Scale, diversification, resources, distribution: These will
be key attributes required from the leaders in the alternative
asset management industry in the future-not forgetting the
small matter of performance. And these are what a combined
Man-GLG group should be able to deliver in spades.
So there are plenty of reasons why the combination of Man
and GLG should work. Whether it will is another matter. Big is
not always better. And putting together businesses that have
strong and idiosyncratic cultures, and whose main assets are
people, has often proved difficult.
Amid the analysis of the deal-which has been plentiful and
generally supportive-it has also been noted, at least in some
places, that both sides probably need of something of a
In Man's case, its assets under management, revenues and
profits have all slumped during the past two years, even though
AHL made 33% returns in 2008, effectively carrying the group
through the most tumultuous phase of the financial crisis.
Where Man got hit first was on the multimanager side after
it was revealed that its Swiss-based RMF fund of funds unit was
among those that had exposure (if only to a modest extent) to
Madoff. Man responded to this blow in robust fashion with a
wholesale restructuring of its multimanager business-an
ambitious undertaking but expected take at least two or three
years to really bear fruit.
In the meantime, unfortunately, the previously unstoppable
AHL engine of the business also seems to have stalled-at least
temporarily. Like most CTAs, it had a poor year in 2009-a major
reason for the sharp fall in the group's fee income last
In GLG's case, the business was affected much more rapidly
during the turmoil of 2008, with the performance of most of its
funds and assets under management badly mauled during the tidal
wave of redemptions and market panic. Such was the speed of the
decline that GLG's move last year to acquire the long-only
business of SocGen Asset Management in the UK was seen by many
at the time as a way to avoid breaching covenants on its total
In terms of performance, GLG recovered pretty well over the
past year, with the majority of its funds making strong gains
and getting back above their high-water marks. But by assets,
the size of its hedge fund business remains a long way below
its historic peak-which is one reason, perhaps, why linking up
with Man's powerful distribution platform seems so
GLG has of course been written off in some quarters at
various times, notably when previous star managers such as
Philippe Jabre and Greg Coffey have flown the coop. But it has
always found ways to reinvent itself-usually by finding more
star traders, one reason why I always thought it would be
foolhardy to write off GLG.
But the whole culture of the star trader/star manager
system, so deeply embedded not only at GLG but throughout the
industry, is very different from the much more low-key,
process-driven, team-based approach at Man and AHL.
It will be interesting to see if and how the two groups
attempt to put these two different cultures together, and how
successful they will be.