Man\'s fund of hedge funds could lose 90% of assets

Date: Monday, March 2, 2009
Author: Wealth-Bulletin.com

Man Group, the world's largest listed hedge fund manager, faces falls of up to 90% in the assets under management of its most important subsidiary, fund of hedge funds business RMF, because of its exposure to alleged fraudster Bernard Madoff, analysts at Morgan Stanley have predicted.

Equity analysts at Morgan Stanley said that, in their base case scenario, "we assume that Man Group sees assets under management shrink by about 75% from its March 2008 peak of $33bn (€26bn) at RMF to about $9bn by March 2011".

This breaks down as redemptions amounting to 13% of assets under management in the first three months of this year, and further redemptions amounting to about 40% of assets under management in Man Group's next financial year, that is, the 12 months to the end of March 2010.

In their bear case scenario, they predicted Switzerland-based RMF shrinking 90%, to $3bn, over the two years to the end of March 2010.

The prediction indicates the extent of fury investors feel for fund of funds managers who invested their money with Madoff, who was accused last year of running a $50bn Ponzi scheme.

RMF had been one of the three largest fund of hedge funds managers in the world. UK-listed Man Group, which also runs single manager hedge funds, has more assets under management than any other quoted alternative asset manager, amounting to $68bn at the end of September.

The analysts said: "We are bearish on asset retention for fund of hedge funds managers that were exposed to Madoff, given the potential damage to due diligence credentials and expect this to compound redemption pressures for RMF."

The US Federal Bureau of Investigation alleged last year that Madoff had been running a $50bn Ponzi scheme, making payouts to old investors with money contributed by new investors, for years. RMF was one of several funds of hedge funds with investments in Madoff's fund.

A source close to investors in hedge funds said: "The two reasons for giving money to funds of hedge funds was for allocation across strategies and for due diligence. They are furious with any funds of funds manager who put their money with Madoff because they think like the manager failed to perform its due diligence properly. Private clients won't even talk to their fund of funds managers, they are just pulling their money away."

Man Group did not returns calls inviting comment.

-- Write to William Hutchings at whutchings@efinanialnews.com