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A trader scratches his head as he watches his screens on the trading floor of Frankfurt stock exchange


Man Group has caught investors off guard. Given the turmoil in financial markets, it was hardly a secret that hedge funds are struggling. Even so, the fund manager's announcement that assets under management had slumped 8.5 per cent in the three months to June – partly as a result of net outflows of $2.6-billion (U.S.) – wiped almost 20 per cent off its market value. It's another reminder that, in volatile markets, fat hedge fund fees are hard to justify.

The enduring financial crisis has been tough for the hedge fund business. Though there have been no big blow-ups, performance has been mediocre, and assets under management are stagnant at about $1.8-trillion, according to Eurekahedge. The Dow Jones Credit Suisse core hedge fund index is down 5.3 per cent year to date, while even top performing strategies, such as managed futures, are little more than flat so far this year.

Man Group is no exception. The group's $25-billion computer-driven fund, AHL, is recovering after wandering off course in 2009. Though the fund is still roughly 5 per cent below its high-water mark, when performance fees kick in again, it gained 6.5 per cent in the two months to the end of August, and is narrowly in the black for the year.

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However, Man's stable of human managers at GLG is having a tougher time. Though there are some bright points – the European equity long/short fund is up 5.9 per cent so far this year – other strategies have suffered. GLG suffered net outflows of $1.5-billion in the quarter.

The mixed performance is a vindication, of sorts, for chief executive Peter Clarke's strategy of building a diversified and global asset management business by acquiring GLG in 2010. No matter how hairy markets get, some part of the business should always do well. Man even managed to capitalize on volatile markets with a new product designed to trade volatility, which is up 22 per cent on the year.

But even after the latest tumble, Man shares are hardly cheap. At 190 pence ($3.04), they trade at roughly nine times reduced earnings forecasts for 2012. Investors will want to see some evidence of stability before piling back in.

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