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Man Group says it will sue over Madoff as assets fall USD14bn in fourth quarter

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Man Group, reckoned to be the world’s largest listed hedge fund manager, saw its share price slide by nearly 7 per cent on Wednesday after it revealed in a trading update that assets under

Man Group, reckoned to be the world’s largest listed hedge fund manager, saw its share price slide by nearly 7 per cent on Wednesday after it revealed in a trading update that assets under management fell by USD14.3bn in the fourth quarter of 2008 and group chief executive Peter Clarke said the group planned to sue over its USD360m exposure to alleged fraudster Bernard Madoff.

The main reason for the group’s decline in assets under management from USD67.6bn at the end of September to USD53.3bn as of December 31 was a reduction in leverage and rebalancing of its MGS product range, which accounted for a reduction in assets of USD9.7bn. Net investment outflows totalled USD3.2bn and exchange rate fluctuations accounted for a further decline of USD2.6bn.

While Clarke said the group would take action over the Madoff fraud in concert with its institutional investors, he did not indicate whom the target of any action might be. ‘We are actively reviewing all options,’ he said. ‘We have to recover our assets on behalf of our investors. This must include appropriate legal action.’

Following the revelation last month that Madoff had admitted conducting a fraud within his investment management business that might total as much as USD50bn, Man Group revealed that its Swiss-based institutional fund of funds business, RMF, had around USD360m million in funds directly or indirectly sub-advised by Madoff. RMF suffered performance-related losses amounting to 7 per cent of its assets in the fourth quarter.

In its trading statement, Man said that despite ‘extremely challenging’ market conditions in the last three months of 2008, with high volatility, low levels of liquidity, limited availability of leverage and year-end redemptions by many investors, their impact on the group was mitigated by continued private investor demand for conservatively structured products and Man’s strong position in the managed futures strategy, one of the very few that did perform well.

The group’s assets under management at year-end consisted of USD32.3bn in funds from private investors and USD21.0bn from institutions. The group enjoyed overall positive investment performance of USD1.2bn, driven by returns for the AHL managed futures business of 22 per cent during the quarter and 25 for the while of 2008.

Private investor sales during the quarter remained strong at an estimated USD2.7bn, including USD600m raised through the launch of the IP220 product in November, reflecting continued investor demand for principal protection and access to managed futures through AHL.

Private investor redemptions totalled USD3.8bn, principally in open-ended products; guaranteed products saw a small net inflow of USD300m during the quarter and open-ended products a net outflow of USD1.4bn. The group had estimated institutional sales of just USD400m and redemptions of USD2.5bn. Man also suffered from the impact of the strengthening US dollar, which had the effect of further reducing its assets under management in dollar terms.

‘The outlook for global markets in 2009 remains uncertain and, against this backdrop, our private investors are likely to focus increasingly on principal protection and liquidity,’ Clarke said in a statement.

‘Our products are designed to provide long-term investment exposure to a range of strategies capable of performing across the market cycle. We have pro-actively positioned investors’ existing portfolios for these markets by reducing risk and balancing exposures to reflect the mandate of the products.

‘We have delivered material positive performance for our investors overall in the quarter and generated significant performance fees for our shareholders, despite difficult markets. The flexibility of our product range allows us to tailor our forward sales pipeline to meet the strong demand for managed futures, by offering AHL guaranteed products across the wide geography of our investor base.’

‘The outlook for institutional sales remains very subdued in the short term and continued institutional redemptions mean that we will see institutional net outflows until markets stabilise and confidence returns.’

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