EMG – Man Group – offers good value?
Man (LON:EMG) is the largest hedge fund in the world, with a market cap of £1477m (at 81.1p). I had made a noted that in Whitman’s book “Value Investing: A Balanced Approach”, financial institutions like brokers/dealers and other money managers should be bought when their price is lower than tangible book value plus 2-3% of AUM (although I think he means 5%).
Using the latest figures, EMG has a tangible book value of about £895m (made up of $3809m net assets, take off intangibles of $2213m and $153m, and convert to GBP). AUM is $60b, which is about £37.2b. So, a good buy point for EMG would be at a market cap of £895m + 2% * £37200m = £1639m
EMG is below even that lowball figure, and so should be considered good value.
There have been a couple of interesting developments:
- Emmanuel Roman succeeds Peter Clarke as Chief Executive from 28 Feb 2013 (EMG’s performance over the last few years has been abysmal). Roman was formerly President and Chief Operating Officer, so it remains to be seen if he can offer sufficiently fresh eyes to management at EMG
- Odey Asset Management has taken a 5% stake in the company. It is run by Crispin Odey. “They are not publicly activist, but there will be private discussions,” one person close to Odey said.
Here’s an interesting personal quote from Crispin Odey:
You need three bear markets to know what to do. The first nearly wipes you out, the second you learn how to survive and the third you take by the scruff of the neck and enjoy it
Don’t necessarily expect to make money fast, though.
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4 comments
I still remember the trend is your friend from David Linton MD @ UPDATA, who is currently succeeding in building a portfolio gaining 1% a week for the last 19 weeks, from last November. EMG has a valuation rapidly increasing, from 10th Feb @ 102 p, 3rd March @137 ,p, 20th March @281 p, Figures from Vector Vest.
difficult one for me
Historically Man's biggest profit driver has been the trend following AHL fund (managed futures quant fund). It had a pretty disastrous 2009-13 as quantitative easing ruined many of the trends that had worked in the past. AHL was forced to effectively rewrite its algorithms. It also meant that some of its very high margin guaranteed products had to degear at the wrong point and some investors redeemed their holdings. As a result AHLs FUM fell from $21bn at the end of 2010 to $9bn at the end of 2013. Man decided to cut costs, change management and diversify its income streams through the acquisition of other asset managers like GLG (acquired 2010, mainly active LO and HF), FRM (acquired 2012, HF investment specialist) and Numeric (acquired 2014, quantitative equity).
So where are now?
Overall Group FUM was $73bn at the end of 2014 and revenues were $1.15bn, still well below the $1.66bn achieved in 2010. However performance fees have recovered from a nadir of $55m to $198m in 2014. So things appear to be on the up.
I think we have to learn from the past to understand the possible future direction. In this regard it is interesting to note the comments in the 2014 annual report:
Trend following still remains the biggest driver for Man Group and a key question is it likely that this "Near perfect environment" for trend followers persists? Secondly its interesting that other trend following funds like Winton and BlueCrest had much better performance than AHL in 2010-12 forcing AHL to change its algorithms. This situation reversed in 2014. I know that one of those two has been looking to reboot its algos, in the same way that AHL did after a period of poor performance. Will this serve to reduce returns for everyone if everyone starts to leap on the same trends?
As a investor often "the trend is your friend", and that is certainly the case with Man Group at the moment. However I struggle to be able to put a sensible valuation on this black box in the same way I do a traditional fund management business. Also Net Management fees for the whole business (pre performance fees) still look high to me at 110bps, although admittedly lower 40bps than 2013. I cant help but feel 2014 was a banner year for trend following so I don't expect the same in future and by association I don't factor in the same (extraordinary) level of performance fees.
Not a trend I feel I want to follow at the moment, but happy to admit I will probably be wrong.
With a 6.1 cents dividend to come, X Div 23/4/15 the shares have moved up and are now undervalued, as against overvalued in December last year. Maybe the brokers should take another look at the estimates for consideration with Stockopedia.
Announcement today 19/12/14 they are buying fund manager Silvermine. The momentum factor is showing 99 & noticing the net profit for 2013 was 72M with estimates for 2014 of 260.6M, up 188.6M yet the broker forecasts are showing negative!
The results of the share price movement this year is cutting new higher ground and an estimate of profits for 2015 is only 277.1M which is only 16.5M up on this year, which I feel very strange.
At this point of time it looks a solid share with further momentum to go.