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 going mainstream.
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
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 lift.
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 year.
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.