6% Income From Hedge Funds
LONDON -- Hedge fund manager Man Group (OTC: MNGPY.PK) has been under fire for some time now for a number of reasons.
The firm's flagship AHL fund has failed to deliver the high-watermark performance needed to earn premium fees, the total number of funds under management has been steadily falling, and the share price has slumped by more than 60% over the past 12 months.
To add to that, we have the company's assurance that it will keep on paying its current level of dividends, now reaching the 13% level, despite earnings levels being insufficient to sustain it.
That has piled pressure on the directors, especially chief executive Peter Clarke, as analysts increasingly speculate that a takeover may be in the cards at current valuation levels.
Turning things around?
But in this week's first-quarter trading update, Mr. Clarke has defended his position -- at the same time the company reported further outflows of cash as clients look for alternative homes for their investments.
Total funds under management rose a little from $58.4 billion to $59 billion over the quarter, but that was driven by investment returns of $2 billion. Behind that, we saw a net outflow of $1 billion of funds.
At least that's a slowdown of the outflow, which may actually have been stemmed. But it's still not much of a vote of confidence in the company's computer-traded AHL fund, which has disappointed investors for several years running.
Mr. Clarke is defiant, saying, "The benefits of innovation and investment at AHL are starting to show through, and we have seen good interest in new products as well as for a range of our current strategies which are well positioned for these markets." He has also told analysts that he believes he still has the support of shareholders.
Worth a punt!
So what value is there in Man Group shares now?
Back in February, Maynard Paton did some calculations and reckoned that, while there's enough cash to cover dividend promises in the short term, a payout level of around 6 pence per share would be closer to long-term sustainability. On today's share price of 97 pence, that would still be a yield of 6%, which really isn't bad at all.
So if you buy the shares now, odds are you'll get at least one hefty dividend paid from cash, and then see a slashed but still healthy payout going forward. With investment outflows slowing, there's also a chance AHL will get back on track and start earning better fees. And there's still the chance of a buyout, which would have to be at a decent premium to today's price.
All in all, despite the gloom, I reckon the shares could be well worth a punt now.
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At the time this
article was published Alan does not own any shares mentioned in this article. The Motley Fool has adisclosure policy.
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