In May, London-based hedge fund Man Group handed its quant teams a three-month long mission: figure out what was ailing its computer-driven hedge fund unit AHL.
Shares in the world’s largest listed hedge fund had fallen 36 per cent in the past year, key strategies were in the red and wealthy individuals were pulling their money.
The conclusion? “Nothing is broken,” said one person familiar with the review.
Instead, the quants — analysts who use algorithms to identify investment opportunities — pinned the blame for three years of lacklustre performance on a “particularly unfavourable” trading environment for the type of trend-following strategy that Man is famous for.
But the collapse in its shares and the spectre of more investors pulling money from its most lucrative strategies has forced the group to confront some key strategic dilemmas: does it continue to seek out alternative revenue streams as it has for the past decade, or instead concentrate on reviving its core hedge fund performance? And will its publicly listed status allow it to do either well?
Under chief executive Robyn Grew, who came up through compliance rather than trading, and her predecessor Luke Ellis, Man has prioritised expansion in new areas.
It has completed a string of acquisitions in the past decade or so, including Boston-based long-only specialist Numeric, real assets investor Aalto and private credit firms Varagon and Bardin Hill, with the aim of cross-selling “content” — management’s term for investment strategies.
But while it has steadily built income streams from these other businesses, they have not come close to offsetting the returns from its hedge fund business, which is struggling.
Former employees argue Man should focus on just being a great hedge fund, investing in developing innovative strategies that will generate huge profits.
“We have to focus all of our resources, because it’s so hard to compete” with other quant hedge funds such as Renaissance Technologies and DE Shaw, said a former senior employee. “We should just focus on what we do very well.”
The company declined to comment.
Man Group was one of the pioneers of a style of investing that relied on large amounts of data and sophisticated mathematical models to make bets on the direction of asset prices, buying a majority stake in quantitative hedge fund business AHL in 1989.
Even with its acquisitions, AHL is the group’s profit driver. It can charge both chunky management fees, and a substantial performance fee when its strategies do well.
Man’s wider hedge fund business, which includes AHL, charges management fees that are five times higher than its long only computer-driven business. In 2022 — the last truly good year, when the group made $779mn in performance fees — at least 60 per cent of the total came from just three AHL strategies.
Trend-following strategies, however, have faltered across the industry as markets have yo-yoed. When markets turn on the whim of the US president, it is difficult to bet on clear trends in asset prices — and to make money for investors. As AHL’s trend-following strategies have struggled, the group’s performance fees have also weakened.
Last year, Man’s flagship institutional trend-following strategy, AHL Alpha, gained 3 per cent: better than the 1 per cent gain in 2023, but a result that helped garner the group just $310mn in performance fees.
So far, Alpha is down 2.4 per cent for 2025, although that is a marked improvement on the 9 per cent fall it had suffered earlier in the year. Since 2014, AHL Alpha has recorded annualised returns after fees of 4.9 per cent, comparable with US Treasury yields.
Man Evolution, another core trend strategy that trades esoteric markets, is down 5.2 per cent this year, having fallen 6.1 per cent last year.
“We fear that unless performance notably recovers, Man could see larger redemptions from institutional investors,” Citi analyst Nicholas Herman said last month, before performance started to improve.
The outsized importance of AHL’s trend following strategies to Man’s profits has made it both tougher to find revenue streams to counterbalance it and more urgent to do so.
“To truly diversify away from AHL, they need to add quite a big leg to the stool,” said another former employee. However, growth in its top multi-strategy offering, Man 1783, has been slow with just $2.5bn in assets flowing in since its launch in 2020. Jain Global, a new rival multi-manager that started trading last year, already has more than $5bn.
Recent acquisitions in private credit have also yet to pay off. Company filings show that US direct lending assets — which Man started reporting when it acquired Varagon two years ago for $183mn — have already fallen $800mn to $9.9bn, although a person familiar with the position said the group had been holding back its firepower as it focused on risk management.
Some of Man’s quant rivals have had more success. London-based Qube and Paris-headquartered CFM have had built up other quant strategies beyond trend following, for example with statistical arbitrage.
One person close to the firm said there was innovation within the hedge fund, but it was happening within Man’s more opaque solutions business, where the group bundles strategies for big investor clients. Man had been developing a strategy based on statistical arbitrage over the past two to three years, and had $1.5bn across two strategies trading Chinese assets, they added.
“What you get in return for the enormous margin [in hedge funds] is everyone wants to eat your lunch all the time,” said a former executive. “If you don’t innovate, you die.”
Revitalising its hedge fund business will entail hiring and retaining top quants and portfolio managers and making pay competitive with American rivals. Grew has already taken some action on that front, promoting Greg Bond, the head of Boston-based quant unit Numeric, in July to be the company’s chief investment officer, four years after the last CIO left.
Voluntary staff turnover across the group is the third-lowest in eight years, and the numbers in quant investment teams were at a record, a person familiar with the situation said.
But Man has also parted ways with some of its most senior investing chiefs over the past year. Jens Foehrenbach, the head of the group’s discretionary investing division in public markets, left to become co-chief investment officer of US macro hedge fund Graham Capital, while Eric Burl, head of discretionary investing for the whole group, has resigned.
Insiders privately acknowledge that Man Group cannot compete on pay with the likes of rivals such as Citadel and Millennium for key portfolio manager roles. However, they have long argued that the company makes up for a pay shortfall with a less cut-throat and more flexible work culture than some US rivals, and that team-based roles are competitive.
But that may not cut it anymore. Man earlier this year tightened non-compete terms for its traders — a tacit acknowledgment that it risks losing its talent to rivals.
Given that pay as a percentage of adjusted revenues is at the very top of the company’s range, funding better pay could entail halting expansion in non-core areas such as private credit and cutting dividends and share buybacks.
One of Man’s problems is the tension between shareholders and investors, which is inherent in its public market listing.
“Man Group has done very well on capital returns,” said Kunal Khotari, a fund manager at Aviva Investors. “The last five years they’ve bought back about 20 per cent of their shares, which is a strong record of capital allocation versus other UK asset managers.”
Man’s shares have started to pick up this month, gaining 15 per cent in two weeks as key AHL strategies have recovered some of their losses.
But the interests of shareholders are not always aligned with investors in the funds.
Shareholders have come to value a 7 per cent dividend yield topped up with buybacks. Fund investors might be more in favour of investment in talent and trading strategies to boost returns, even if that comes at the expense of profits for Man — and potentially dividends and buybacks to Man’s shareholders.
Critics point to the difficulties of resolving that conundrum in an era when other hedge funds do not face similar constraints.
“The problem is if they announce that the dividend yield will be 1 per cent, the share price will crater,” one of the former employees added. “It’s a terribly difficult situation.”
